A special needs trust can provide important protections for someone who is disabled and who needs to qualify for Medicaid benefits. Special needs trusts can be used to protect assets owned or acquired by someone with disabilities. However, there are specific rules that must be followed for trust creation.
Nirenstein, Horowitz & Associates can provide insight into what special needs trusts are and how this type of trust is used. We can also explain the different types of special needs trusts, including a first party special needs trust and a third party special needs trust.
When you have decided what type of trust is the right one for your specific situation, we can help you to create it. Give us a call today to learn more.
Why Create a Special Needs Trust?
It is important to create a special needs trust if you have a person in your life who you care about who has a disabling condition. If you want to give a financial gift during your lifetime (an inter vivos gift) or you want to give a financial gift after your death to the person with disabilities, you must make sure you understand how your gift will affect eligibility for mean-tested benefits provided by the government.
The government provides Medicaid coverage, which pays for medical treatments. The government also provides Supplemental Security Income (SSI). SSI pays a monthly stipend to someone with a long-term disability. Both programs are for the needy, and this means there are resource and income limits. If you give a gift to someone with a disability and the gift is valuable, it could count as a resource and could lead to a loss of benefits.
You don’t want to be responsible for a loss of benefits, so you need to structure ownership of the gift you give so that doesn’t happen. Creating a special needs trust is often the answer. Assets held in a special needs trust aren’t going to be considered resources, so Medicaid and SSI eligibility won’t be affected.
Creating a special needs trust also lets you name a trustee, who will manage the assets you put into the trust on behalf of the disabled beneficiary of the trust. The trust beneficiary may not be able to manage the money you are leaving behind, but the trustee should be someone who can care for and monitor the value of investments.
You can provide specific instructions on how the money and assets in the trust are to be used, and the trustee has a fiduciary duty to follow the trust document and use the funds to benefit the person with disabilities who you have tried to provide for.
What are the Differences in First Party vs. Third Party Special Needs Trusts?
When you are creating a special needs trust, often the goal is for you to be able to make a financial gift and ensure the gift is used to benefit the person you love with disabilities. However, this is not the only situation in which a special needs trust may be created. A special needs trust may also be appropriate or necessary if the person with the disability obtains a large amount of money or property of their own.
The property of the person with the disability should also be protected, and should be managed appropriately. To make this possible, a first party special needs trust can be created. First party special needs trusts can be created by the beneficiary’s parent or guardian, by the beneficiary’s grandparent, or by the court. This type of trust is often funded with money received from a personal injury settlement, if an injury caused the disability.
First and third party special needs trusts are different in lots of ways, in addition to the fact third party trusts are funded by a third party and first party trusts are funded by the person with the disability. The money in a third party special needs trust, for example, can be used to support the person with disabilities during his life and can then be transferred to a chosen recipient after the death of the person with special needs. Those who want to make a financial gift to someone who is disabled should consult with a special needs trust lawyer as soon as possible for help.
Getting Help Creating a Special Needs Trust
If you need to create a first party special needs trust or a third party special needs trust in Hartford, Westport, or surrounding areas throughout Connecticut, Nirenstein, Horowitz & Associates can help. Give us a call today at 860-548-1000 or contact us online to learn more about the assistance that we can provide with trust creation.