Third Party Vs. Self-Settled Special Needs Trusts

Special Needs Trusts (SNTs) are a special type of trust used to protect a person’s ability to continue receiving needs-based government benefits, primarily Medicaid and Supplemental Security Income (SSI). Because a beneficiary of such programs cannot legally more than a specified amount of assets, it is often necessary to create a SNT to ensure they do not exceed that threshold. The basic idea behind a SNT is that an independent trustee retains ownership of the trust assets and uses those assets to help the beneficiary pay for certain additional benefits not covered by the government.

You will often hear a SNT described as either a “third party” or “self-settled” special needs trust. So how do the two differ? And what laws govern or restrict such trusts?

Third-Party Special Needs Trusts

A third-party SNT is one created by someone other than the beneficiary. Typically this is a family member. For example, if you have a disabled adult child who requires Medicaid and SSI, you could create a third-party SNT to help with their needs. The third party creates and funds the SNT with their own assets.

A third-party SNT is not necessarily a separate document. It may be incorporated into the will or larger trust created by the grantor of the SNT. Indeed, SNTs are often a key part of estate planning when you have disabled family members, as you do not want an unexpected inheritance to affect their eligibility for government benefits.

Self-Settled Special Needs Trusts

A self-settled SNT, as you may have guessed, is one created and funded by the person receiving government benefits. The most common case for a self-settled SNT is one where it becomes necessary to segregate newly acquired assets. For instance, say a person is rendered permanently disabled following a car accident. They subsequently require government benefits to help pay for ongoing medical care. Meanwhile, the person also pursues a personal injury lawsuit against the parties that caused the car accident. A sudden windfall from a personal injury judgment would affect their eligibility for benefits. In this scenario, the person could create a self-settled special needs trust.

Self-settled special needs trusts are subject to a number of legal restrictions in Florida. First, the grantor must be disabled and under the age of 65. Second, once created, a self-settled SNT is irrevocable by the grantor. That is to say, the trust cannot be undone. Finally, if the grantor of a self-settled SNT receives Medicaid, the trust must contain a “payback” provision that turns over any assets remaining in the trust after the recipient’s death to the State of Florida.

Third-party SNTs are not subject to any of these restrictions. The grantors who create a SNT can amend or revoke the trust at any time and for any reason. Nor are there any restrictions on who may be a beneficiary of a third-party SNT.

Speak with a Florida Estate Planning Attorney Today

Special needs trusts are just one tool that a person may use to preserve their assets. An experienced St. Petersburg trust planning lawyer can review your situation and advise you on a possible course of action. Contact Legacy Protection Lawyers, LLP, today to schedule a consultation.