Berge & Berge, LLP Blog

Friday, February 17, 2017

What Types Of Special Need Trusts Are Available To Me?

Special needs trusts provide a way for you to safely transfer funds to a loved one without threatening his or her ability to receive government benefits such as Social Security and Medicaid. These types of trusts can be set up so that it operates while you are alive or begins once you have passed. There are a lot of factors to consider during the special needs planning process, so it helps to have an experienced special needs planning lawyer at your side to avoid problems.

There are three basic types of special needs trusts available to choose from. Many people choose to fund these trusts through a bequest when they pass. However, the most important thing to remember when funding a special needs trust is that it is the trust, not your loved one, is the beneficiary of the funds.

Below is a breakdown of the three types of special needs trusts.

Third Party Special Needs Trusts

Third party special needs trusts are set up by a third party, (who does not have to be related to the beneficiary) who contributes money to the trust. This type of trust is usually part of the donor’s estate plan to assist the family member with special needs while the donor is still alive. The trust can then manage any inheritance with the donor passes.

Third party special needs trusts can:

  • Own real estate or investments
  • Be the beneficiaries of life insurance proceeds
  • Receive benefits from retirement accounts

There are a number of key benefits to a third party special needs trust, including:

  • The trust can be of unlimited size
  • Funds can be used for almost anything the beneficiary needs as a supplement to government benefits
  • When the beneficiary dies, the funds can be passed to other relatives or anywhere the donor wishes

A third party special needs trusts is unique in that, because the funds never belonged to the beneficiary, there is no requirement that funds be used to repay Medicaid expenses.

First Party Special Needs Trust

First party special needs trusts must be set up by a parent, grandparent, guardian or the court for the benefit of someone under the age of 65 who possesses a disability as defined by Social Security. Trust funds may be used to provide support to a beneficiary throughout his or her life. However, any assets left over when the beneficiary dies must be used to repay Medicaid.

Pooled Special Needs Trust

A pooled special needs trust is one set up by a non-profit organization for the benefit of many disabled individuals. The non-profit organization acts as the trustee, taking care of investments and tax matters. Anyone may fund a pooled special needs trust. Any funds remaining in the beneficiary’s account when they die must be used to repay the state for amounts expended by Medicaid.

What Special Needs Trust is Right for Me?

Special needs trusts are complicated documents with far-reaching implications. Make sure it’s done right. The Law Offices of Berge & Berge have over 23 years of experience drafting special needs trusts. Contact us today at 408-389-6980 to see how we can help.

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