Are you planning to leave assets to a disabled beneficiary upon your death? If so, consider establishing a special needs trust (“SNT,” also known as a supplemental needs trust) for your beneficiary’s benefit.
An SNT is an irrevocable trust (i.e., the trust cannot be revoked or amended) established for the benefit of a disabled individual and managed by a trustee. Because the trust is not owned by the beneficiary, the trust assets can be used to provide for the disabled person’s needs over and above the essential primary care provided to the disabled person through public assistance programs such as Medicaid or SSI, without compromising his or her eligibility for those benefits. SNTs are divided into two general categories, first-party or third-party, depending on who the trust is funded by.
First-party SNTs are, as you may expect, funded with the disabled person’s own assets. A first-party SNT is established by the disabled person or on his or her behalf by a guardian, parent or grandparent, or the court. While a first-party SNT is a good option for a disabled person who wants to preserve assets he or she already has, upon his or her death the State can recover against the disabled person’s estate for benefits paid during his or her lifetime, including recovery against non-probate assets.
Third-party SNTs, on the other hand, are created by a third-party’s Will or Revocable Trust for the benefit of the disabled person and funded upon the third-party’s death from the proceeds of the third-party’s estate. There is no limitation on who may create a third-party SNT for the benefit of a disabled person, and upon the beneficiary’s death there is no estate recovery by the State.
While many SNTs are privately managed, they can also be created as a pooled and community trust (PACT) which is run by a nonprofit entity. While each PACT beneficiary has a separate account, the assets of all participating beneficiaries are pooled for investment purposes. PACTs, like private SNTs, can be either first- or third-party.
If you have any questions on this topic, please contact Attorney Emily E. Ames at firstname.lastname@example.org or (920) 393-1190.