When you’re thinking about implementing a special needs trust, many people don’t do that right away. There’s kind of a hesitancy to do that. And that can be for a variety of reasons.
Sometimes people really just don’t understand the need for a special needs trust, they feel confused about the various roles.
There are many, many different kinds of trusts. In addition to special needs trusts, we have many other types, but even within the realm of special needs trust, it can be really confusing because there are so many different variations. a third-party special needs trust is not created by the beneficiary or the beneficiary spouse. It is created by another party, generally a parent, grandparent, or another family member. The trust should not hold the beneficiary’s assets. First-Party Special Needs Trusts are funded with a beneficiary’s own property, such as an inheritance or the proceeds from a lawsuit. Although the beneficiary’s own assets will fund the trust, the regulations governing First-Party Special Needs Trusts require that the beneficiary’s parents, legal guardian or the court establish the trust. Another requirement is that the beneficiary must not be over age 65 at the time the trust is funded.
A properly drafted trust agreement will address a trust’s obligation to reimburse governmental programs such as Medicaid, SSI or their state equivalent. With Third-Party Special Needs Trusts, the remainder beneficiaries will receive the entire balance of the trust because its assets are not subject to Medicaid payback provisions upon the death of the beneficiary.