Special Needs Trusts Can Be Structured Several Ways

By Sally M. Wagley, Maine elder law attorney

A special needs trust can be a valuable tool in protecting the long term well-being of a loved one. Here are some common questions answered about various structures.

What is a “third party” special needs trust?
A third party special needs trust is for the client who wants to provide in his or her will for a disabled child or other relative. The client’s goal is to ensure that the disabled child or relative continues to be eligible for SSI, MaineCare and other public assistance programs while having funds available on the side to meet his or her special needs. The client has a Will which appoints a trustee to handle the disabled child’s or relative’s inheritance. Typically, the trust will say that if anything remains in the trust when the disabled child or relative dies, the balance will then be distributed to certain other family members. (A third party special needs trust is not required to have a “pay-back” provision to reimburse the government.)

What is a “first party” special needs trust?
A first party special needs trust is for the disabled client on public assistance who receives a sum of money; for example, from a personal injury or medical malpractice action, from an inheritance or from a divorce. If the client places the new funds in a “first party” special needs trust which meets certain strict requirements, the client will continue to be eligible for SSI, MaineCare and other public assistance programs. The requirements are: the person must be disabled according to the standards used by the Social Security Administration; the person must be under age 65; the trust must be irrevocable; it must be established by a parent, grandparent, guardian or court; it must state that any funds remaining in the trust at the disabled person’s death be used to pay back the government for what it spent on the person’s medical care. Anyone can be named trustee of a special needs trust of this type: a friend, family member, professional, bank, trust company or non-profit organization.

What is a “pooled” trust?

A pooled trust is a special needs trust administered by a non-profit organization for the benefit of a number of disabled people. The disabled person’s funds are placed in a “sub-account” with the organization. The organization acts as trustee for the disabled person, drawing on the person’s sub-account to make direct payments to providers for the person’s special needs. In Maine, there are two pooled trusts: the Maine Pooled Disability Trust and the Maine Trust for People with Disabilities. Under SSI and MaineCare rules, if a person age 65 or older wants to fund a special needs trust, he or she must use the pooled trust.

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