Busy trustees deserve payment, but there are important guidelines to follow to determine how ? and how much ? to bill the...Read more
You may have heard that special needs trusts are required to reimburse the government for Medicaid expenses incurred by the trust's beneficiary when they pass away, and, in some cases, this is true. But not all special needs trusts are required to contain this type of "payback" provision. If you are worried that the trust funds will go to pay back the government, you may not have anything to fear.
If a parent, grandparent, family friend, or any other interested person wants to set up a special needs trust for a person with special needs, they will typically create a "third-party" special needs trust. The trust is called a "third-party" trust because it is funded with assets that do not belong to the person with special needs.
These trusts are commonly used by family members to set aside inheritances for, or to simply provide additional assistance to, a family member with special needs. If properly created and funded, the assets in a "third-party" trust will not count as the beneficiary's funds if or when they apply for benefits like Supplemental Security Income (SSI) or Medicaid. Most importantly, a properly designed "third-party" special needs trust does not have to include a payback provision, meaning that the government has no right to the funds when the beneficiary dies.
On the other hand, if a person with special needs needs to place their own funds into a trust, they have two main options.
One is to transfer the funds into a trust that they establish for themselves, called a "first-party" special needs trust (because the assets come from the person with special needs herself).
Or, they can transfer the funds into a pooled disability trust that is run by a nonprofit organization. In almost every case, these types of trusts must contain payback provisions in order for the beneficiary to avoid a loss of government benefits due to excess assets.
In many cases, a family member looking to fund special needs trust for a person with special needs will utilize a "third-party" special needs trust that doesn't contain payback provisions and that provides enormous benefits to the person with special needs. Even if the trust does contain a payback provision, in some cases where the beneficiary exhausts all of the trust's assets, there may still not be a government payback at all. In either case, a special needs planner in your area can help you to determine which type of trust is right for your family.