Special Needs Trust – Different types and Considerations

If you have a family member with disabilities, chances are you’ve spent quite a bit of time thinking about the best way to address their long-term financial needs. Fortunately, if your loved one is under age 65, there is a legal mechanism by which this goal can be accomplished—a Special Needs Trust (“SNT”).

When choosing the type of SNT best suited for your situation, it is important to consider: (1) the specific needs of your loved one, and (2) the resources available to address those needs. In general, Special Needs Trusts, which are a type of irrevocable trusts, come in two distinct forms:

General Support/Discretionary Special Needs Trust

If the assets held by your trust are sufficient to support your loved one’s health, education, maintenance, support, and well-being for his or her lifetime, then a General Support/Discretionary SNT may be appropriate.

Supplemental Special Needs Trust

If you determine that government benefits will likely be necessary adequately support your loved one for the duration of his or her life, then a Supplemental SNT may be the better option.

A brief explanation of the core features of each SNT, a type of irrevocable trust, will greatly enhance your understanding of the foregoing.

A General Support/Discretionary Special Needs Trust is designed to serve as your loved one’s primary source of income. Through utilization of a General Support/Discretionary Needs Trust, your designated Trustee will provide the disabled beneficiary with periodic distributions of trust assets to provide for their general care, as well as quality of life enhancements such as education, hobbies, and activities.

In contrast, a Supplemental Special Needs Trust is designed to serve as a supplemental resource to your loved one’s government benefits (whether they are currently receiving these benefits, or where such receipt is reasonably anticipated). An outright distribution of trust funds to a disabled beneficiary may disqualify him or her from receiving public healthcare or income assistance. However, when receiving distributions of trust funds through a Supplemental Special Needs Trust, these trust funds are not readily accessible by the disabled beneficiary. Instead, these funds remain in trust and are distributed by the trustee to the beneficiary at intervals and in amounts sufficient to maintain his or her receipt of government assistance. Thus, the beneficiary may receive government assistance whilst simultaneously being provided with additional trust funds necessary to pay for uncovered care, services, and activities.

When establishing a Supplemental Special Needs Trust, the source of the assets used to find the the Trust is almost as important as the trust type. A Supplemental Special Needs Trust can either be:

  1. First-Party or Self-Settled, meaning that it is established with assets belonging to the special needs beneficiary; or
  2. Third-Party, meaning that it is established with assets belonging to another person other than the trust beneficiary in which the beneficiary never had possession or legal interest.

This distinction is important because First-Party Supplemental Special Needs Trusts are subject to estate recovery from institutions such as the Department of Health Care Services, while Third-Party Supplemental Special Needs Trusts are not. Thus, under a First-Party Supplemental Special Needs Trust, the disabled beneficiary’s estate may be required to reimburse the various government agencies that provided him or her with assistance during their lifetime upon his or her death. In contrast, under a Third-Party Supplemental Special Needs Trust, upon the death of the disabled beneficiary, any funds remaining in trust at the time of his or her death may be distributed to contingent beneficiaries—such as his or her children—without the need to first reimburse various government agencies that provided the disabled beneficiary with assistance during their lifetime.

If you need an experienced Special Needs Trust lawyer in Covina CA, allow our professional team to answer your questions and develop a Trust that is right for you and your loving family.

For additional information, please call 626-858-9378 or request a free consultation by using the below form