There are multiple types of trusts that will allow you to take care of a person with special needs. There are often tax exemptions affiliated with these types of trusts that will protect the special needs person in various ways. However, it is important to distinguish which type of trust is most suitable for your situation.
The first option is a special needs trust. A special needs trust is a trust designed to take care of a person with special needs. This type of trust is often the most effective way to manage resources while still allowing the child or dependent to remain eligible for public assistance benefits, such as Social Security Income or Medicaid.
There are two types of special needs trusts. The first type, a third-party special needs trust, is created by using the parent’s assets as part of an estate plan. This can be done either by writing a will or establishing a living trust. If you create a third-party special needs trust via will, the trust benefits will not become accessible to the child (or person with special needs) until the parent’s (or person making the will) death.
The second type of special needs trust is a self-settled special needs trust. This type of trust is also generally created by a parent, grandparent or guardian using the child’s own assets to fund the trust. For example, if the child was involved in a car accident resulting in their current disabilities, often there is a personal injury lawsuit or settlement that will provide funding for lifelong care. The assets kept in this type of trust are used for the special needs person’s maintenance. If any trust assets remain after the special needs person’s death, a payback to the state is required.
Both types of special needs trusts allow the special needs person to still qualify for public assistance benefits.
Finally, a person might also want to consider setting up a support trust instead of a special needs trust. A support trust requires that the child/special needs person receive distributions from the trust for basic necessities such as food, clothing, medical care, shelter, and education. With this type of trust, a person is assigned the job of making these disbursements (known as the trustee) for the child/special needs person. As trustee, that person has legal title to the trust assets, but can only use them for the benefit of the child/special needs person.
Unlike special needs trusts, however, support trusts make the child/special needs person ineligible to receive financial assistance through social security income or Medicaid. This is an important thing to consider in selecting the right trust for your situation.