The legal lingo around special needs trusts can be confusing. Fortunately, special needs trusts can be placed into three main categories. The problem is each category may be referred to in multiple ways. As a threshold matter, a “special needs trust,” also known as a “supplemental needs trust,” or a “SNT” (pronounced “snit”) is a type of trust that is designed to provide for a disabled individual, typically in a manner that preserves the individual’s eligibility for government benefits, including Social Security Supplemental Security Income (“SSI”) and Medicaid (administered by MassHealth in Massachusetts). The three main SNT trust categories are: 1) first-party trusts; 2) third-party trusts; and 3) pooled trusts.
A first-party SNT, also known as a “D4A Trust,” after 42 U.S.C. § 1396p (d) (4) (A) of the United States Code, or a “payback trust,” is a trust that is funded with the disabled beneficiary’s own assets. The trust can be set up by the beneficiary, a parent, a grandparent, a guardian, or a court prior to the beneficiary turning age 65. As the payback trust moniker suggests, these trusts must contain a provision that provides for the government to be paid back from the trust remainder following the death of the beneficiary.
A third-party SNT is a trust that is usually created and funded by a parent, relative, or friend of the disabled beneficiary. These trusts may be created by an “inter vivos trust,” or “living trust.” These trusts may also be created by a will, in which case they are considered “testamentary trusts.” Unlike a first-party SNT, these trusts contain no payback provision.
A pooled trust, also known as D4C trust, after 42 U.S.C. § 1396p(d)(4)(C) of the United States Code, is a trust that is established and administered by a non-profit association. A pooled trust can be a good option where the amount of assets to be contributed toward the disabled beneficiary’s care are relatively small or naming an associational trustee is desirable.
Contact the Law Office of Brandon L. Campbell to learn more about planning for a child with special needs.