3 Types of Special Needs Trusts
If you have a disabled family member or otherwise care for someone that has special needs, it’s natural to worry about how they will be cared for after you depart. A special needs trust will allow you to allocate your left-behind assets to that person without them losing their government-issued benefits. This will ensure that they are able to be properly cared for with help like personal attendants or therapy and can provide them with services like phone and internet. The type of trust you create for your dependent depends on who is creating it and how you wish the assets to be distributed long-term. Here are three types you can choose from when setting up your special needs trust management.
Trust with Dependent’s Assets
A trust that has been created using assets that belong to the dependent is often called a first-party special needs trust. This type of trust is commonly set up when the individual has acquired assets through inheritance, a settlement, or some other means and are under the age of 65. This type of trust is set up so that the caregiver can leave their assets to the special needs dependent without the fear that the dependent will lose their government-issued benefits. Upon the death of the dependent, the remaining money will be acquired by Medicaid, which will use it to reimburse itself for the support the state provided for that dependent.
Trust with Third-Party Assets
The second type of special needs trust is one that deals with the assets of a third party, such as parents or grandparents. Often called a third-party special needs trust, this is usually created when the person leaving the assets to the dependent doesn’t want their inheritance to negatively affect the dependent’s ability to obtain their government-issued benefits. This type of trust is created by someone during their lifetime through a document such as a will. A trustee is appointed to handle the money to ensure that it ends up with the dependent as intended. While the trustee is unable to give the money directly to the dependent, they can pay for certain items or services that their monthly SSI benefits don’t already cover. When the dependent dies, the remaining money will be distributed as directed by the creator.
Trust with Pooled Assets
A trust set up with pooled assets is managed by a non-profit organization using first-party or third-party pooled trusts for those with special needs. This type of trust is easy and cheap to set up as there is no cost and no required tax return. Any time money is transferred out of the trust or distributed to anyone other than the individual, penalties will be assessed. When the dependent dies, the money will usually stay in the trust to assist others with special needs.
Special needs trust management ensures that your loved one with special needs is cared for after you depart. These are three of the types of special needs trusts that you may choose from to support your loved one after you’re gone.