The general idea behind setting up a trust is to have a trustee responsibly manage your assets until they can be passed down to your beneficiaries, such as your children or grandchildren. However, there are many different types of trusts, and each comes with its own set of objectives, advantages, and disadvantages. The main purpose of a “special needs trust” is to preserve public benefits for beneficiaries who are disabled, such as healthcare and housing assistance.
If you’re interested in creating a special needs trust for a disabled loved one, it is critically important to work with a qualified and experienced attorney. To start exploring your family’s legal and financial options in a confidential legal consultation, call Los Angeles special needs trusts lawyer Robert Hoffman at (800) 897-3915 today.
Reasons to Create a Special Needs Trust
Many public programs which are designed to help people with disabilities feature a need-based eligibility assessment. Two of the most common examples of these need-based programs include:
- Supplemental Security Income (SSI) — Along with SSDI (Social Security Disability Insurance), SSI consists of monthly disability benefits from the SSA or Social Security Administration. But while SSDI is a workers’ insurance program with eligibility based on a work credits system, claimants only need a qualifying disability & to meet certain financial thresholds to qualify for SSI assistance.
- Medi-Cal — Medi-Cal is essentially California’s version of the federal Medicaid program. Medi-Cal is intended to provide free or reduced-cost healthcare coverage for senior citizens, disabled persons, pregnant women, families with children, and low-income families.
In addition to SSI and Medi-Cal, other programs based on financial need include housing subsidies (i.e. Section 8 housing), food stamps, in-home support services, and utility payment assistance.
Without the proper planning in place, receiving an inheritance will disqualify the beneficiary from future government benefits by elevating the beneficiary above the accepted financial thresholds. However, it may be possible to preserve these benefits and the support they provide with help from an experienced special needs trust lawyer.
First- and Third-Party Special Needs Trusts: What’s the Difference?
There are two major types of Special Needs Trusts: first-party trusts, and third-party trusts. How are they different, and which is more appropriate for you?
A third-party special needs trust is not formed by the person it will benefit. Rather, it is both established and funded by a person other than the public benefits claimant, hence the term “third-party.” In most cases, these sorts of special needs trusts are established by the parent or parents of a disabled child. However, this type of trust may also be established by a grandparent, a sibling, or indeed any other third party. A third-party trust can be established at death via coordination with a will or living trust, or during the life of the the creator of the trust who is known as the settlor (i.e. the trustor).
By comparison, a first-party special needs trust is formed by the beneficiary himself or herself. It is often used when a disabled plaintiff is awarded a judgment or settlement from litigation proceedings — like a personal injury lawsuit. These trusts are so named because it is the disabled individual places the money or property into a first-party trust. This trust is what protects them from losing federal and state benefits due to their momentary financial windfall.
There are many different terms used to refer to the various subcategories of first-party special needs trusts, so do not be confused if you hear terms such as:
- (d)(4)(C) SNT & (d)(4)(A) SNT — Named after 42 U.S.C. § 1396p(d)(4)(C) & 42 U.S.C. 1396p(d)(4)(A), respectively. These trusts focus on providing the best quality of life for Medicaid beneficiaries.
- Litigation Special Needs Trust — These trusts refer to proceeds from awards like lawsuits and settlements. The proceeds are put into this form of trust so that public benefits like Medicaid and SSI will not be affected.
- “Miller” Trust — These trusts are used to help Medicaid applicants would otherwise surpass the financial threshold qualify for assistance. These trusts are not funded with the beneficiary’s assets, and are also called qualified income trusts.
- Payback Special Needs Trust — These arrangements place the beneficiary’s funds into a trustee’s control so that access to Medicaid and SSI will not be compromised.
- Pooled SNT — Funded with assets owned by the beneficiary him- or herself, with funds being pooled for investment purposes. These SNTs are handled by nonprofit organizations.
Los Angeles special needs trust attorney Robert Hoffman can help you create a robust and comprehensive first- or third-party trust to help care for your loved one’s needs. To start discussing your goals in a completely private consultation, call our law offices at (800) 897-3915 today.