What Is a Special Needs Trust?
There are two types of supplemental needs trusts, also called a special needs trusts and SNTs, and they both allow a disabled or chronically ill beneficiary to qualify for government benefits such as Medicaid and SSI while still receiving distributions from the trust. Without a special needs trust, if a disabled Medicaid and/or SSI recipient receives an inheritance or a personal injury award, they would lose their much needed government benefits. Both trusts have very specific rules which must be complied with, and consultation with a qualified attorney is advised.
1. First Party Special Needs Trust
A first party SNT uses the assets of the disabled beneficiary, such as a personal injury award, to fund the trust. Upon the beneficiary’s death, the trust has a pay-back requirement, unlike the third party SNT.
2. Third Party Special Needs Trust
A third party SNT is set up for the beneficiary’s benefit by someone other than the beneficiary and their spouse. Typically, parents of special needs, disabled, or chronically ill children set up third party trusts for their children in order to allow them to receive an inheritance without losing their benefits. More about this planning technique can be found in this article on beneficiaries with special needs.