Special Needs Trusts
A Special Needs Trust or Supplemental Needs Trust is a trust established specifically for the benefit of a person (beneficiary) with special needs to supplement any benefits the person may receive from government programs. The essential purpose of a Special Needs Trust is to improve the quality of an individual’s life without disqualifying him/her from eligibility for public benefits. A properly drafted Special Needs Trust will allow the beneficiary to receive government benefits while still receiving funds from the trust.
The Trustee of a Special Needs Trust plays an important role. They are charged with managing the trust assets for the beneficiary and making appropriate distributions to the beneficiary according to the trust provisions. It is very common for the beneficiary to have physical or mental disabilities that would qualify them for government assistance programs. The Trustee must understand the type of public benefit programs that are or might be available to the beneficiary. The Trustee should determine how the beneficiary receives the funds, what the provisions
are for food and shelter, and how this may affect eligibility. The most common trusts are First-Party and Third-Party Special Needs Trusts.
Types of Trusts
To determine which type of Special Needs Trust you have or need depends upon whose property is funding the trust. If the property funding the Special Needs Trust originates with the beneficiary, then it is a First-Party Special Needs Trust. This type of trust holds assets that belong to the beneficiary such as an inheritance or an accident settlement. A Miller Trust is a special type of First-Party Special Needs Trust that is most often used to preserve eligibility for certain types of governmental benefit programs. With a First-Party Special Needs Trust, there is a payback provision whereby the trust funds remaining after the death of the beneficiary must first be used to reimburse the government for assistance payments made during the beneficiary’s lifetime.
A Third-Party Special Needs Trust is also widely used. This type of trust is established by someone other than the person with a disability (usually, but not always a parent) with assets that belong to other people who want to help the person with special needs. This type of trust does not contain a payback provision found in a First Party Special Needs Trust. This means that when the beneficiary with special needs dies, any funds remaining in the trust can pass to other family members or to charity, without reimbursement to the government.
Both First-Party and Third-Party Special Needs Trusts must be properly drafted in order to protect a beneficiary’s right to receive public benefits. It is important to discuss which type of Special Needs Trust should be used in a specific situation with an attorney who is proficient in special needs planning. Call Kathy Gawtry at the First National Bank Trust department for assistance with planning Special Needs Trusts.