Exploring the different types of special needs trusts

by | Aug 30, 2018 | Firm News |

When a person in New Jersey has a loved one with special needs, they will want to make sure their loved one is provided for financially. One way to do this is for the special-needs individual to obtain government benefits. However, usually a person must have limited resources in order to qualify for government benefits. This can become problematic when the person with special needs has other financial resources, but still needs government benefits to meet all of their living expenses and medical expenses.

A special needs trust can be one way that an individual with special needs can receive financial resources without being disqualified from receiving government benefits, such as Medicaid and Supplemental Security Income. In general, special needs trusts are “third-party” trusts that are established by a party other than the individual with special needs, for example, established by a parent or guardian, and are funded using the third-party’s assets. However, sometimes a person with special needs will set up a “first-party” special needs trust.

Like a third-party special needs trust, a first-party special needs trust allows the beneficiary to access assets without being disqualified from receiving government benefits. However, a first-party special needs trust is funded with the beneficiary’s own assets. This allows the beneficiary with special needs to pay for expenses not covered by government benefits. A first-party special needs trust must be irrevocable, and the beneficiary must be under age 65 when the trust is created. Finally, when the beneficiary dies, the beneficiary’s state Medicaid agency must be reimbursed.

Understanding the difference between third-party special needs trusts and first-party special needs trust can be key to deciding how best to meet the needs of the beneficiary of the trust. Those considering executing one of these trusts may want to do so with professional guidance, so the final trust is legally sound.