What is a Special Needs Trust and when do I need one for my child or a beneficiary with a physical or mental disability?  What is the difference between a First-Party Special Needs Trust and a Third-Party Special Needs Trust or Supplemental Needs Trust?

It is important to create an estate plan specifically designed for beneficiaries or children with special needs.  If your intended beneficiary is disabled and is receiving governmental benefits or may need governmental benefits in the future, a Special Needs Trust may need to be created, otherwise, those benefits may be lost or become unavailable.  It is vital to have an understanding of the type of benefits your beneficiary is receiving or may receive in the future, such as Social Security Disability Insurance (“SSDI”) and Medicare benefits, or Supplemental Security Income (“SSI”) and Medicaid benefits, or both, in order to plan properly.

It is also important to understand the difference between a First-Party Special Needs Trust and a Third-Party Special Needs Trust, sometimes referred to as a “Supplemental Needs Trust.”  The difference can be significant.  If assets are owned outright by a disabled beneficiary, only a First-Party Special Needs Trust can be created for continuation of Supplemental Security Income (“SSI”) and Medicaid benefits.   This type of trust requires a “payback provision,” ensuring that benefits paid by the government on behalf of a beneficiary are paid back by the trust to the government if those assets are not used up by the disabled person during his or her lifetime.  However, assets left to a disabled beneficiary in a Third-Party Special Needs Trust do NOT require a payback provision.   In other words, funds left to your beneficiary in a Third-Party Special Needs Trust can be subsequently passed on to other family members.   Having an estate plan (or lack of one) in which assets pass directly to a disabled beneficiary can have dramatic and costly impacts as well result in a loss of governmental benefits.

After creating and funding a Special Needs Trust, it is extremely important that the trust assets are handled properly.  There are strict rules regarding the administration of Special Needs Trusts.  The purpose of a Special Needs Trust is to ensure that trust funds are used for the sole benefit of the disabled beneficiary.  This does not mean that family members such as Guardians cannot receive any funds from the trust, but in order to do so, it must be shown that such payments were truly made for the disabled person’s benefit.   If trust funds are improperly administered, the benefits of the Special Needs Trust may be lost and a family may be required to pay back funds improperly received.  The assistance of an attorney familiar with the administration of a Special Needs Trust can be invaluable.

The creation of Special Needs Trust can improve the quality of life of a disabled individual and preserve family assets.   The Law Office of Richard M. Cohen will create a Special Needs Trust specific to your family’s needs to provide for food, clothing, shelter, luxury items, and even houses and cars, without putting a disabled person’s benefits at risk.  The Law Office of Richard M. Cohen will also assist family members to assure that they continue to administer the Trust properly.