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Special Needs Trust and Disability Services
A special needs trust is a trust tailored to a person with special needs that is designed to manage assets for that person's benefit while not compromising access to important government benefits.
There are three main types of special needs trusts: the first-party trust, the third-party trust, and the pooled trust. All three name the person with special needs as the beneficiary.
A "first-party" special needs trust holds assets that belong to the person with special needs, such as an inheritance or an accident settlement. A "third-party" special needs trust holds funds belonging to others who want to help the person with special needs. A pooled trust holds funds from many different beneficiaries with special needs.
Why Use A Special Needs Trust?
The reason there are several different types of trusts is related to regulations regarding Supplemental Security Income (SSI). SSI is a government program that assists people with low incomes who have special needs. In order to qualify for SSI, an applicant or beneficiary can have only $2,000 in his own name. If the person has more than $2,000 in his own name (typically because of excess savings, an inheritance, or an accident settlement), the government allows him to qualify for SSI so long as he places his assets into a first-party special needs trust. While the beneficiary is living, the funds in the trust are used for his benefit, and when he dies, any assets remaining in the trust are used to reimburse the government for the cost of his medical care. These trusts are advantageous for beneficiaries who are receiving SSI and come into large amounts of money because the trust allows the beneficiary to retain his benefits while still being able to use his own funds when necessary.
Third Party Trusts
The third-party special needs trust is most often used by parents and other family members to assist a person with special needs. These trusts can hold any kind of asset imaginable belonging to the family member or other individual, including a house, stocks and bonds, and other types of investments. The third-party trust functions like a first-party special needs trust in that the assets held in the trust do not affect an SSI beneficiary's access to benefits and the funds can be used to pay for the beneficiary's supplemental needs beyond those covered by government benefits.
But a third-party special needs trust does not contain the "payback" provision found in first-party trusts. This means that when the beneficiary with special needs dies, any funds remaining in her trust can pass to other family members, or to charity, without having to be used to reimburse the government.
The Pooled Trust
A pooled trust is an alternative to the first-party special needs trust, and is discussed in greater detail here. Essentially, a charity sets up these trusts that allow beneficiaries to pool their resources for investment purposes, while still maintaining separate accounts for each beneficiary's needs. When the beneficiary dies, the funds remaining in her account reimburse the government for her care, but a portion also goes towards the non-profit organization responsible for managing the trust.
Remember, a special needs trust provides resources to ensure that a family member with special needs receives the care he or she requires. It places responsibility for managing the assets with a qualified trustee, and it protects the assets from creditors and fraudsters. Perhaps most importantly, it allows you to assist a loved one without jeopardizing their eligibility for government benefits.
"Establishing special needs trusts is a complex job, and there are important considerations to keep in mind regarding public benefits, tax implications and the impact of the trust on a family’s overall financial and estate plan. Our firm will take the time to understand your needs, and we will provide you with comprehensive advice throughout the process."
---- RJ Connelly III
Rhode Island, Massachusetts, and Connecticut Certified Elder Law Attorney
"Southern New England's Certified Elder Law Attorney"
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