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What type of special needs trust should you choose?

Updated: Mar 8

Special needs trusts allow you to provide loved ones with additional funds without causing them to lose their government benefits. This can help them pay for the increasing cost of living in California without worrying about losing their Supplemental Security Income or Medicaid benefits. If you want to provide a special needs trust for someone, you can choose from three options.


Consider first-party trusts if you are a relative

Someone with special needs may establish a first-party trust if they have existing assets they want to protect before receiving their government benefits. First-party trusts also allow parents, grandparents and guardians to provide a special needs trust as part of their estate planning. A first-party trust must follow these guidelines:


  1. The beneficiary must be under 35.

  2. Medicaid must be repaid from the beneficiary’s trust after their death.

  3. Grantor must make the trust irrevocable, meaning it cannot be altered after it is created.


Third-party trusts contain less restrictions

A third-party trust cannot be funded or created by the beneficiary. Parents typically create a third-party trust, but any third party may establish a trust. Third-party trusts typically include these guidelines:


  1. Funds or assets must never have belonged to the beneficiary.

  2. No age limit guidelines exist.

  3. Funds cannot be used to pay back creditors, including Medicaid.


Pooled special needs trusts receive organizational management

Unlike the other two types of trusts, a pooled special needs trust allows a trusted organization to manage a disabled person’s assets. Typically, these assets are used to pay for shelter, food or other essentials. No limit is placed on the funding amount.


The type of trust you need depends upon your circumstances

All estate planning must suit the unique needs of the individual. Special needs trusts are not an exception. Planning for a trust early allows your loved one to receive the greatest amount of assistance.

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