If you wish to gift assets to someone with special needs, care must be taken when making that gift because you could do more harm than good. To ensure that you do not interfere with the beneficiary’s eligibility for much-needed state and federal assistance programs, you may choose to make your gift using a Special Needs Trust. A Special Needs Trust is a specialized type of trust that is intended to provide financial support to someone who has special needs or who is disabled. The Waukegan special needs planning attorney at Hedeker Law, Ltd. explain the different types of special needs trusts to help you decide which type you need to establish.
Why Might I Need a Special Needs Trust?
As the parent, or loved one, of a child with special needs or someone with a disability, special care must be taken when estate planning because gifting assets directly to your child or loved one could do more harm than good. Adults with special needs or disabilities often depend on state and federal assistance programs such as Medicaid, Medicare, or SSI. Those programs, however, typically have income and asset limits that cannot be exceeded by recipients. Gifting assets to someone with a disability or special needs, therefore, can result in disqualification for many of these much-needed programs. The solution is often found in the creation of a special needs trust.
What Is a Third-Party Special Needs Trust?
As the name implies, a third-party special needs trust is established by the third party with assets of the third party for the benefit of a person with a disability or with special needs. This type of trust is most often established by a parent, or another family member, for the benefit of a child with special needs and uses assets of the parent, grandparent or family member. This type of trust must include specific language and must be worded such that the assets in the trust are actually distributed to a third party, such as the parent, to be used for the benefit of the individual with special needs. Because the assets held in the trust are not available to the beneficiary, those assets do not disqualify the beneficiary from eligibility for assistance programs such as Medicaid and SSI. In fact, the idea behind this type o special needs trust, which is also referred to as a “supplemental needs” trust, is that the assets held in the trust will be used to “supplement” the benefits provided by the state and federal government.
What Is a First Party Special Needs Trust?
The other common type of special needs trust is a first-party, or self-settled, special needs trust. This type of special needs trust is established using assets of the disabled individual or person with special needs. It must be established by the parent, grandparent, guardian of the person with a disability, or by a court. Only the person with a disability can be the beneficiary of the trust. This type of special needs trust is most frequently needed when a disabled individual receives a lump sum of money, such as the result of a settlement for injuries in a personal injury accident. The lump-sum would likely disqualify the beneficiary from eligibility for assistance from Medicaid, SSI, and other state and federal assistance programs. One of the other important differences between a third part and a first-party special needs trust is that with a first-party trust, any assets remaining in the trust upon the death of the beneficiary must be used to pay back Medicaid. With a third-party special needs trust, there is no need to worry about repaying Medicaid.
Contact a Waukegan Special Needs Planning Attorney
For more information, please join us for a FREE estate planning seminar. If you have additional questions or concerns regarding the use of a Special Needs Trust in your estate plan, contact an experienced Waukegan special needs planning attorney at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.