Parents of children with special needs must take extra care when estate planning and leaving an inheritance. Money given to a child with special needs can make them ineligible for Medicaid or Supplemental Security Income (SSI).
By putting the inheritance in a special needs trust (SNT), the child retains eligibility for those government benefits and the inheritance money still goes to them.
What is a trust?
A trust is a fiduciary relationship in which a trustee (a third party) manages the property and assets for the beneficiary. A beneficiary is a person who benefits from the trust. This legal arrangement is usually outlined in a document that explains the trustee’s authority over the trust, how the beneficiary benefits from the trust and when the trust terminates.
What is a third-party SNT?
A special needs trust goes beyond the regular trust as it preserves the beneficiary’s (the child with special needs) eligibility for needs-based programs like SSI and Medicaid. A third-party SNT (or supplemental needs trust) contains only funds of assets belonging to someone other than the beneficiary. The government benefits mentioned above often have an asset limit but because the beneficiary does not own the assets in the third-party SNT, they do not count towards that limit.
How does a first-party SNT differ?
A first-party SNT is a trust funded with income or assets that belong to the individual with special needs who is also the beneficiary of the trust. Federal law requires that the beneficiary create and fund the irrevocable trust when he or she is under the age of 65.
Overall, a well-executed special needs trust is an excellent document to include in an estate plan for families with a special needs child.