With life’s unpredictabilities, parents and family members with children or siblings with special needs should look into establishing a special needs trust. This will help ensure that those close to them with special needs have resources for care in the advent that a family member is no longer able to provide care financially.
People with disabilities over the age of 18 automatically receive financial care benefits under governmental programs known as Supplemental Security Income (SSI). A special needs trust is designed to supplement funds received from SSI.
Three Types of Trusts
Essentially, a trust involves three parties including; a donor to the trust; a trustee who administers funds of the trust in accordance with the donor’s requirements; and a beneficiary who receives the benefit of the funds. The donor who establishes the trust works with an attorney to delineate the terms of how the assets of the trust are to be used, and how the resources are to be distributed by a special needs trust manager.
There are three basic types of special needs trusts. A first-party trust holds the financial resources that belong to the person with special needs. A third-party trust shares the financial resources among a group of pre-designated people who have agreed to assist the person with special needs. A pooled trust is managed by a charity ad holds the financial resources for a group of people with special needs.
A third-party trust is most common in the case of aging parents and siblings who have agreed to assist a brother or sister with special needs. These trusts may contain a host of assets such cash reserves, investments, physical assets such as homes, etc. One distinction is that a third-party trust does not contain the payback provision as in first-party trusts. The payback provision allows any funds remaining in the trust to pass back to family members upon the death of the special needs individual. Under a third-party trust the remaining resources go back to reimburse the government under the SSI program.
A pooled trust is set up and managed by a charity. It allows the resources to be pooled for investing to generate greater resources to build up the financial reserves of the trust. Individual accounts are created for each of the beneficiaries. When a beneficiary passes, the majority of funds in their particular account go to reimburse the government under SSI, and a portion is directed to the charity to compensate them for managing the trust.
Once the appropriate trust is legally established, a special needs trust manager can oversee the day-to-day affairs of the trust and apply funds to the care of the special needs individual over and above that from the governmental SSI program.