Creating a special needs trust can be an effective way to provide financial security for disabled
individuals and those with special needs. A special needs trust can be used to provide funds for
essential living expenses of a disabled individual. This can include things such as hiring a
caregiver, education, travel, clothing, furniture or crucial medical treatments. There are several
different types of special needs trusts you can choose from.
Third party special needs trust
Those individuals with special needs who are unable to earn enough income or disabled
persons who are living on their own may be able to obtain some financial security through the
use of a third-party special needs trust. Commonly, this type of trust is included in a loved one’s
estate plan with the aim of making sure the disabled person is taken care of after they have
passed away. This may be a parent or grandparent looking out for a disabled child or
grandchild.
A third-party special needs trust can use funds for any of the beneficiary’s needs. Also, there are
no limits to the amount of capital that the trust can hold for the benefit of the individual with
special needs. Additionally, the funds will not have any impact on determining eligibility for
public assistance programs.
First-party special needs trust
Another type of special needs trust is a first-party special needs trust. This type of trust holds
assets directly contributed by the disabled person for the benefit of himself or herself. Many
times, the first-party special needs trust is utilized when the disabled person has received a
sizable inheritance or has won a large award from a lawsuit in court.
First-party special needs trusts ensure that settlements awarded in court do not affect public
assistance eligibility of the beneficiary.
Pooled special needs trust
There are situations when the capital from a third party and first-party special needs trust do not
provide enough financial security for a disabled person. A pooled special needs trust will
combine the resources of numerous beneficiaries into a fund. This fund would then be managed
professionally by a non-profit entity. The reason for pooling resources together is to empower
beneficiaries to take advantage of larger-scale investments. Also, combining capital in this
manner can make investing more cost-effective.
One advantage of a pooled special needs trust is that the non-profit firm tasked with managing
the assets in the pool of funds has specialized knowledge in special needs planning and will be
caught up on the latest eligibility rules for receiving public assistance benefits. Of course, the
manager of the fund will make decisions ensuring eligibility for government assistance will not
be compromised. Also, since the non-profit organization is made up of many people with
relevant skills and knowledge there will be no need to find a replacement for a trustee who has
died.
What type of special needs trust should you choose?
The circumstances of your particular position will determine what type of trust you will need to
set up. For example, a beneficiary with special needs who is in line to receive a large
inheritance will have different requirements than a disabled person from an impoverished family
with few assets. Therefore, take complete stock of your financial situation and objectives and be
sure to fully educate yourself on all relevant aspects before making a final decision.
The foregoing information has been obtained from sources considered to be reliable, but we do not
guarantee that it is accurate or complete. Any opinions are those of the author and not necessarily those
of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change
without notice. There is no guarantee that these statements, opinions or forecasts provided herein will
prove to be correct.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal
matters with the appropriate professional.