Special Needs Trusts are Very Special!
Special Needs Trusts, also called Supplemental Needs Trusts (“SNTs”)
SNTs hold money and other assets safely for the beneficiary’s wants and needs.
I call all trusts a “piggy bank.” The Grantor, the person who will put the money and other assets into the trust, signs the SNT. The trust is also signed by the Trustee, the person who will take care of the financial needs of the beneficiary. The initial Trustee is usually the Grantor, but not always, and successor Trustees are named in the SNT. Once the transfer of assets has been accomplished, the piggy bank now has the “coins” in its belly.
There are two major types of beneficiaries: 1) a person who will lose public benefits if the assets are given directly to the beneficiary; and, 2) a person who is unable to manage his/her financial affairs. The assets in the SNT can only be used for the benefit of the beneficiary named in the SNT. The beneficiary can never be a Trustee.
There are two types of SNTs: First Party and Third Party.
First Party SNTs must be used if the Grantor is the beneficiary. In other words, the assets are owned by the beneficiary. A couple of examples: the beneficiary received an inheritance; or, received money from a personal injury case; or, the beneficiary saved funds from employment or was given gifts from others. A First Party SNT has strict rules and is audited annually. And, at the beneficiary’s death, any remaining funds in the SNT must be paid to any federal or state agency owed money for supporting the beneficiary; this is known as “the pay-back” clause.
A Third Party SNT is much preferred because there is no payback clause and the rules are much looser. It is important for a parent, for example, to set up this type of SNT so the SNT, not the beneficiary, receives the inheritance.