When to consider a first-person special needs trust

By March 14, 2011Uncategorized

We have compared first- and third-party special needs trusts on numerous occasions in the past.  As a simple refresher, a first-party special needs trust is where money belonging to an individual with special needs is used to fund the special needs trust on that person’s behalf.  A third-party special needs trust, on the other hand, is where somebody close to the person with special needs, typically a parent, uses his or her money to establish the trust for the person with special needs.

The idea behind first-party special needs trusts is to convert countable assets to non-countable assets for purposes of determining eligibility for public benefit programs, such as Medicaid or SSI.  To qualify for these programs, applicants can generally have no more than $2,000 worth of countable assets.  Many times, this is no problem, as those with special needs tend to have diminished earning capacity.  Other times, however, public benefit recipients receive substantial increases in their assets that would disqualify them from their benefits without careful planning.

A few examples of how a public benefit recipient may realize a substantial increase in assets may be useful here.  The following may all give reason for a person with special needs to establish a first-person special needs trust:

  • Receiving an inheritance.
  • Receiving a life insurance settlement.
  • Receiving Social Security survivor benefits.
  • Receiving a personal injury settlement.
  • Receiving certain military benefits.

Any of these scenarios might disqualify a public benefit recipient from his or her benefits.  In essence, anytime a person with special needs receives a substantial sum of money, he or she needs to consider the ramifications it will have on the benefits upon which he or she relies.  A special needs trust attorney can help these individuals determine the most appropriate course of action.