A special needs trust (“SNT”) is an arrangement set up by a special needs individual or a third party to provide income to this person while allowing him to receive public benefits (such as SSI or Medicaid).

         A special needs trust is contemplated by United States Code 42 USC Section 1396p(d)(4).

Necessity of Special Needs Trusts

          If money were put in the special needs beneficiary’s personal bank account, the funds would be counted against him in terms of qualifying for needs-based public benefits. Funds put in a qualifying SNT, on the other hand,  are not countable against  his eligibility for such programs.    The “catch” is that the  goods and services purchased by the SNT must not be provided  by the government benefit received by the special needs individual.

Definitions: First Party and Third Party SNTs

        A first-party SNT is funded by the special needs individual himself while a third party SNT is funded by someone else (often a family member).  A first-party SNT is also known as a “self-settled” SNT because the support applicant is both the creator and beneficiary of the trust.  Most provisions of the self-settled trust are similar to those of a third-party SNT. The most prominent  rules of SNTs of both varieties are:

   - a restriction against distributions that would eliminate or reduce the beneficiary’s eligibility for public benefits, and

   -  a prohibition against the special needs beneficiary demanding income or principal from the SNT.

             Third-party special needs trusts are  typically created by family members of special needs individuals to plan for their future care. For instance a third party SNT may be set up in a parent’s will or living trust for the benefit of her child. These arrangements are designed to prevent  the special needs descendant from receiving an inheritance that would cause him to lose eligibility for government assistance.

            Self-settled SNTs, on the other hand,  are used by public assistance beneficiaries who suddenly receive a lot of assets. For instance, if a medicaid recipient is involved in a car accident that results in a settlement or award, the resulting payment may disqualify the accident victim from continuing to receive benefits unless it were placed in a self-settled trust. If the parent of a special needs individual failed to create a special needs trust in her estate planning documents, her bequest to this heir may  disqualify  him from receiving government benefits.unless he were to create his own self-settled SNT and assign the devise to it.

Differences Between First-Party and Third-Party SNTs  

               Self-settled SNTs in Florida are different from third-party SNTs in three ways. First, only disabled persons under the age of 65 may create a self-settled SNT. Third-party SNTs may be established by anyone at any time regardless of the age of the beneficiary. Also, self-settled special needs trusts must be irrevocable; the disabled creator of the trust cannot change his mind and either amend or undo his trust. Third-party trusts, by contrast, may be freely amended or terminated by the third-party creator until her death. Finally, first-party SNTs must provide that the SNT pay all assets in the trust at the time of the beneficiary’s death to the government to the extent required to reimburse for the  lifetime Medicaid benefits received by the beneficiary.  Since a third-party SNT is funded by the third-party’s assets, the trust creator is free to devise the trust assets as he chooses.

Contact Fort Lauderdale Attorney John Clarke at (305) 467-5560 for all your estate planning and elder law needs.