Types of Special Needs Trusts

A special needs trust is a legal instrument created for the benefit of a person with disabilities. It is designed to provide financial support without jeopardizing the beneficiary’s eligibility for government benefits. There are different types of special needs trusts, and each has its unique characteristics. In this article, we will explore the different types of special needs trusts and their features.

First, there is the first-party special needs trust. This type of trust is established using the beneficiary’s assets. It is also called a self-settled trust. It is commonly used when the beneficiary receives a settlement from a personal injury lawsuit or an inheritance. The first-party special needs trust can help the beneficiary maintain eligibility for government benefits while still enjoying the assets’ benefits.

Second, there is the third-party special needs trust. This type of trust is established using assets belonging to someone other than the beneficiary. It is commonly used when a family member wants to provide for a loved one with special needs without affecting their eligibility for government benefits. The third-party special needs trust allows the beneficiary to receive financial support without losing government benefits.

Another type of special needs trust is the pooled trust. This type of trust is established and managed by a nonprofit organization. It combines the assets of several beneficiaries for investment purposes. The pooled trust allows the beneficiary to maintain government benefits while still benefiting from the trust’s assets. The pooled trust is an excellent option for individuals who do not have enough assets to establish their own trust.

Finally, there is the testamentary special needs trust. This type of trust is established through a will. It takes effect after the death of the testator. The testamentary special needs trust can be either a first-party or third-party trust. It is an excellent option for parents who want to provide for their child with special needs after their death.

In conclusion, special needs trusts are an essential tool for ensuring financial security for individuals with disabilities. The different types of special needs trusts offer flexibility and choices for families seeking to provide for their loved ones with special needs. It is essential to consult with an experienced estate planning attorney to determine the best type of special needs trust that suits your needs.