If there is someone in my family with special needs, how do I approach a special needs trust? What are its different types? How do these trusts work?
Self-settled special needs trust or 1D (4) a
In this type the person with special needs receives money in his/ her name. However the money will not be owned by him or the money doesn’t belong to his estate. As a reason he can use the money to avail government facilities.
For instance, these are the scenarios that can occur,
1. Due to either incorrect designation or if the beneficiary’s name is directly mentioned.
2. Due to some lawsuit the settlement money is provided to the individual for the harm created.
3. If the disabled individual who was saving money exceeds his Medicaid limit. For the cause he can use these kinds of trusts.
As a result of this type the individual can avail both the trust money as well as the government facilities. One drawback is that the money in the trust will be given only for Medicaid payback. Due to which all the money will go to Medicaid. If the disabled person receives a lot of money this remains the major option.
2D (4) c or Pooled special needs trust
A non-profit organization runs this type of trust and there will be one trustee. Here pooled means that the trust will collect the assets of every beneficiary. This will be called as ‘master trust’ and there will be other ‘sub trusts’ for each person benefitted. This type of trust is helpful for families with low assets. As it helps them to provide necessary facilities for their loved ones.
The rules for sub trusts will be similar as in 1D (4) a trust when the beneficiary dies. When a beneficiary passes away, the remaining money gets dissolved in the organization. This is a reimbursement for the Medicaid money, which they paid to the beneficiary.
One difficulty is that pooled trust is state specific. When the beneficiary changes state, then a new pooled trust must be started in that state. And the old one in another state will be dissolved.
Third party special needs trust
In this type the disabled person cannot fund himself. Rather the funding is done by the other family members. For example, a child with autism who cannot fund himself. Then this type is used. When money is in this trust in the beneficiary’s name it will not be considered as his asset. As a result, he/she can still claim other government benefits.
Most of the times people prefer this type over the others. The reason is that, in this type money does not revert to the charity after the death of the beneficiary. Rather, it will go to the person as designated by the third party. It may be a family member, a charity etc.
Whenever you are trying to choose a special need trust for your child, please do the complete research and then choose the appropriate trust for your child.