Synergy Blog

The Special Needs Trust: 3 Types

The Special Needs Trust (SNT) is designed to protect individuals with disabilities who are receiving money through a trust. The SNT is an effective tool because it places funds and other relevant assets in the control of a trustee to make it easier for an individual with special needs to save money while avoiding any possible breaches such as spending more than the active Supplemental Security Income/Social Security Disability (SSI/SSDI) resource limit of $2,000.

Few realize that breaching a trust can lead to a recipient losing their eligibility for federal and state benefits, so it is important to work with a settlement planner from Synergy Settlement Services who understands the nuances of SNTs. In this article, we will discuss the three types of trusts associated with SNTs: the First-Party Trust, the Third-Party Supplemental Trust, and the Pooled Trust.

First-Party Trust

This trust must be filed and completed by a parent, grandparent, or the court. It cannot be filed by the special needs beneficiary although this trust is funded by the assets of the beneficiary. As long as the beneficiary is living, the funds in the trust can be utilized for their benefit. Once the beneficiary passes away, the government is reimbursed for their Medicaid costs, often referred to as a payback provision.

Third-Party Supplemental Trust

Like the First-Party Trust, a Third-Party Supplemental Trust allows a disabled beneficiary to relinquish control of their trust to an entity who may be able to more suitably manage finances for long-term success. This is a common form of SNT because the trust is permitted to hold any type of asset from the donor including a house, stocks and bonds, or alternative types of investments. This type of trust also applies to beneficiaries of life insurance policies. Arguably the most important thing to understand about this trust is that since the SNT is never placed in the beneficiary’s name, the remaining funds will be passed on to family members or a preferred charity instead of the government if the beneficiary passes away.

Pooled Trust

When utilizing the Pooled Trust, all trust money is held and distributed by a non-profit 501c3. This can help avoid conflicts of interest and ensures that all money is issued according to necessity. Like the First-Party Trust, it also includes a payback provision. Is there not enough money for a stand-alone SNT for your client? This type of trust allows beneficiaries to combine their resources in a “pool.” This makes it easier for beneficiaries to invest their money wisely. Once again, if the beneficiary dies, the remaining money is passed on to another, non-government entity. Although a portion will often be given to the non-profit trust manager.

For more information about a pooled trust or to schedule a consultation, please submit our contact request form.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

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Panter, Panter & Sampedro

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Jeffrey Meldon & Associates, P.A.

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