Perhaps your teenage son suffered injuries as the victim of a truck-car crash and is now disabled.
He has government benefits but recently received a substantial insurance settlement. You wish to find a special needs trust that will ensure your son has lifetime financial support.
About special needs trusts
Establishing a special needs trust is a way to set aside money for the needs of a disabled person without jeopardizing the receipt of government benefits such as Medicaid or Supplemental Security Income (SSI). In order to continue receiving federal assistance, the disabled party must keep no more than $2,000 in cash assets. Therefore, an inheritance, a monetary gift or a large insurance settlement would cancel the government benefits.
Pooled special needs trust
Nonprofit organizations establish and manage pooled special needs trusts for multiple beneficiaries. The organization administers the funds and makes investments for the beneficiaries as a whole while maintaining separate accounts. After the death of the beneficiary, remaining funds may go to Medicaid for reimbursement or to appointment beneficiaries with a portion of the remainder normally going to the nonprofit.
Third-party special needs trust
Someone other than the beneficiary funds a third-party special needs trust. Usually, this is a parent, a grandparent or guardian. The trust can either be revocable or irrevocable. Funds remaining after the death of the disabled person can pass to appointed beneficiaries.
First-party special needs trust
The funds for a first-party special needs trust come directly from the beneficiary, such as an inheritance or insurance settlement. To qualify, the beneficiary must be under the age of 65 when establishing this irrevocable trust. There must also be a provision that allows funds remaining after the beneficiary dies to repay Medicaid for costs.