When you have a special-needs family member, planning for their future care may help you ensure that you can meet all of their medical, financial and personal needs, even after you pass on. Establishing a special needs trust is one of the most effective ways to do so.
The Special Needs Alliance notes that the two types of trusts, first-party and third-party, each have differences that may affect how the beneficiary receives it. If you plan to create a trust for a special-needs family member, then you may want to review the differences between the two so you choose one that best suits your family’s situation.
If your loved one receives government assistance for a disability, then creating a first-party trust could protect him or her from losing any of that aid. Money received as a result of a change in circumstances may affect their qualifications, including:
- A divorce settlement
- A personal injury awarded by the courts
- An inheritance
Using these funds to fill a special-needs trust can protect your disabled loved one in the future and safeguard his or her ability to receive continued government assistance.
Unlike first-party trusts, which receive their funds through benefits and awards given to the beneficiary, a third-party trust receives funding from other individuals. This may include funds from you and your family members, such as attaching the creation of the trust upon the death of a grandparent. You may include this action while estate planning as well, as it may help you avoid probate court.
No matter which trust you create for your special-needs family member, planning it with care and attention to future issues, such as trust taxes, may cause fewer problems for the beneficiary.