Before we look at the distinctions between the different types of special needs trusts, we should explain the value of these legal devices.
People who are disabled are clearly going to need health insurance. Care and treatment can cost millions of dollars over the course of a lifetime under some circumstances, so coverage is absolutely essential.
Most people get health insurance through their jobs, and many people who are disabled cannot work and earn income. They don’t have health insurance through employers, and they have limited financial resources, so they can qualify for Medicaid.
You are probably aware of the fact that Medicaid is a government run health insurance program that exists to provide a safety net for people with virtually no financial resources.
If you qualify for Medicaid on a given day, your financial circumstances on that day are going to be utilized to determine your eligibility status. A windfall of money could change everything. The improvement in financial status could result in a loss of Medicaid eligibility.
The same situation applies to Supplemental Security Income. This is another need-based government program. Benefit eligibility could be lost if the recipient was to come into some money.
Third Party Special Needs Trusts
Now that we have set the stage, we can look at two different types of special needs trusts that are frequently utilized. One of them is the third party special needs trust.
If you want to provide resources for a loved one with a disability who is enrolled in government benefit programs, you could make this person the beneficiary of a third party special needs trust. It is a third party trust because the funding would be coming from someone other than the beneficiary.
The trustee could use assets that have been conveyed into the trust to purchase goods and services that benefit the loved one with special needs. As long as the expenditures did not violate the program parameters, eligibility for benefits would not be jeopardized.
When this type of trust has been established, the Medicaid program would not seek reimbursement from the estate of the beneficiary after the beneficiary passes away.
First Party Special Needs Trusts
A first party special needs trust is created with assets that are the property of the beneficiary. Things work in the same manner when it comes to the trustee’s ability to use assets in the trust to improve the beneficiary’s quality of life.
However, Medicaid would seek reimbursement from the estate of the beneficiary after his or her death.
Free Special Needs Planning Consultation
We can help if you would like to discuss special needs trusts with a licensed professional. Our firm offers free consultations, and you can send us a message through our contact page to set up an appointment: Smithtown NY Special Needs Planning.
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