It has become common knowledge that disability rates have steadily risen among children, which makes the need to understand the importance of a Special Needs Trust (SNT) even more significant. Defined, a SNT Protects the rights of the disabled individual to maintain their eligibility for public assistance benefits. If you left your disabled beneficiary money or property via your outright trust or will without the protection that a SNT provides, they would be disqualified from receiving government benefits, like social security income among others. The disqualification could last until your special needs beneficiary spends or discards the left money or property.
The one situation where the loss of benefits may not matter is if the sum of money or property is large enough to support your disabled recipient for their lifetime. However, this would be a rare occurrence.
The good thing, is that anyone can set up a special Needs Trust. There are two different SNT’s: Third party and first-party trusts.
Third-Party Special Needs Trust
This SNT is the best option to aid someone with special needs. Once the aiding family member passes away, a third-party trust supports the disabled beneficiary at the hands of an appointed trustee. Thus, the special needs child will never have direct access to the funds or property and will still be able to receive public assistance. The trustee can use the funds in numerous ways to support the recipient, including: purchasing furniture, paying bills, funding vacations, or buying household supplies or luxury items. If the trustee provides the disabled beneficiary with a cash gift, they will no longer be eligible to receive their governmental benefits.
First-Party Special Needs Trust
A first-party SNT is a legal document specifically designed to aid the special-needs person. The goal of a first-party SNT is to protect the benefit eligibility of a special needs person when they come into a large amount of property. This property can be awarded in numerous ways, including: a personal injury award, a retirement plan, a divorce settlement, a life insurance policy or inheritance. To keep this money or property and continue to receive their benefits, the recipient must put those assets in a first-party trust and adhere to strict government rules to not threaten benefit eligibility.
Avoid putting your special needs child in a precarious situation once you a pass. A qualified attorney can provide beneficial knowledge tied to your specific situation as each special needs child and situation are unique.