WHAT IS A SPECIAL NEEDS TRUST?

 

A Special Needs Trust, or Supplemental Needs Trust as it is also called, is a trust established for a disabled person with assets either belonging to the disabled person or another individual for the purpose of qualifying or retaining public benefits for the disabled person. If the assets are contributed by the disabled person, it is called a First Party Special Needs Trust. If the assets are contributed by another person, such as a parent, it is called a Third Party Special Needs Trust.

 

 

WHAT IS THE DIFFERENCE BETWEEN A FIRST PARTY SPECIAL NEEDS TRUST AND A THIRD PARTY SPECIAL NEEDS TRUST IN ADDITION TO WHOSE ASSETS ARE CONTRIBUTED TO THE TRUST?

 

The major difference is the “Payback Provision.” A First Party Special Needs Trust must contain a provision which states that any funds advanced by Medicaid in any state must be paid back after the beneficiary dies or if the trust is terminated before any funds in the trust can be used for other final expenses or distribution to remainder beneficiaries.

 

 

WHEN SHOULD A PERSON CONSIDER USING A SPECIAL NEEDS TRUST?

 

If a parent is considering estate planning and has a child who is disabled, he or she should consider using a Third Party Special Needs Trust as part of his or her planning. Also, if a person is receiving a distribution from an estate or from a divorce or personal injury settlement, he or she should consider a First Party Special Needs Trust.

 

 

IS THERE A REASON NOT TO DO A FIRST PARTY SPECIAL NEEDS TRUST?

 

Under the Affordable Care and Patient Protection Act (ACA), individuals with pre-existing medical conditions will be able to purchase private health insurance which covers all pre-existing conditions. This part of the ACA went into effect on January 1, 2014. If a disabled person receives a large personal injury or divorce settlement, or inheritance, and can afford to purchase health insurance covering pre-existing conditions at a reasonable price, a First Party Special Needs Trust with a Medicaid Payback Provision may not be necessary.

 

 

CAN A SPECIAL NEEDS TRUST HELP A FAMILY WITH ONE PARENT IN A NURSING HOME?

 

Yes. When a person with a spouse is admitted to a nursing home, all assets are transferred to the spouse at home. If that spouse predeceases his or her spouse, those assets need to be protected from disqualifying the spouse in the nursing home from Medicaid. A Qualifying Special Needs Trust can be drafted in a Will for the spouse at home to protect the family’s assets from passing to the spouse in a nursing home or being considered available to that spouse.