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Getting to know the three kinds of special needs trusts

If you have a loved one with special needs, you want to be sure that he or she can look forward to a lifetime of the best care possible.

Perhaps you are beginning to think about setting up a special needs trust, but did you know there are three kinds to consider?

First- and third-party trusts

Both the first-party trust and the third-party trust are designed in such a way that they do not interfere with government benefits. In both cases, the beneficiary is able to access the trust funds while still receiving Supplemental Security Income from the federal government.

The difference is that the funds in the first-party trust belong directly to the beneficiary; for example, there may have been a large family inheritance or a settlement from an accident. When the beneficiary dies, any remaining funds in the trust will be paid to the government in the form of reimbursement for the medical care he or she received.

On the other hand, assets held in the third-party trust belong to others—grandparents, for instance—who want to help the individual with special needs. The assets placed in this trust can be anything: stocks, bonds, even real estate property. There is no government reimbursement when the beneficiary passes away. Instead, the remaining funds will go to family members or to a charity.

The pooled trust option

The third option to consider is the pooled trust. The beneficiaries who participate pool their resources to invest, but they also keep separate accounts from which their individual needs are met. A pooled trust is an alternative to the first-party trust. It is administered by a charity, and the beneficiary is still able to receive SSI assistance. When the beneficiary dies, the remaining funds will be divided between the government and the charity that managed the trust.

Unique requirements

A family law attorney will tell you that every trust is unique because it must serve the requirements of a special needs beneficiary. Learning about the three different kinds of trusts is a good place to start when you are considering how best to help the special needs person in your life.

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