Establishing a special needs trust for a family member who requires help will add to the benefits he or she receives from the government.
There are three types of special needs trusts to consider in first-party, third-party and pooled trust formats.
First-party trust
Supplemental Security Income, or SSI, is a government program that assists low-income people with special needs. To receive SSI funds, the beneficiary cannot have more than $2,000 in his or her name. However, if the person has more than this, through an inheritance, for instance, the receipt of SSI funds will still gain approval as long as the excess assets are in a first-party special needs trust. When the beneficiary dies, any remaining assets will be used to reimburse the government for the cost of medical care in the decedent’s lifetime.
Third-party trust
Parents and other family members often use this type of trust to help a loved one with special needs. A third-party trust can hold any kind of asset; for example, stocks and bonds and real property. Unlike the first-party trust, the government pay-back does not apply. When the beneficiary passes away, the assets in the third-party trust can pass to family members or a charity.
Pooled trust
Like the other two types of trusts, the pooled trust names the special needs individual as the beneficiary. The pooled trust established by a charity is an alternative to the first-party trust. For investment purposes, the beneficiaries pool their resources but still maintain separate accounts that address their needs. When a beneficiary dies, the bulk of the remaining funds goes toward reimbursing the government for the care of the deceased, but the charity in charge of managing the trust also receives a portion.
Making choices
Keep in mind that the laws covering matters like special needs trusts are always evolving. Explore your legal options and rely on knowledgeable guidance to help you determine which kind of special needs trust is right for your loved one.