Creating a special needs trust can be an effective way to provide financial security for disabled individuals and those with special needs. A special needs trust can be used to provide funds for essential life expenses of a disabled individual. This can include things such as hiring a caregiver, education, travel, clothing, furniture, or crucial medical treatments. There are several different types of special needs trusts you can choose from. 

Third party special needs trust 

Those individuals with special needs who are unable to earn enough income or disabled persons who are living on their own may be able to obtain some financial security through the use of a third-party special needs trust. Commonly, this type of trust is included in a loved one’s estate plan with the aim of making sure the disabled person is taken care of after they have passed away. This may be a parent or grandparent looking out for a disabled child or grandchild. 

A third-party special needs trust can use funds for any of the beneficiary’s needs. Also, there are no limits to the amount of capital the trust can hold for the benefit of the individual with special needs. Additionally, the funds will not have any impact on determining eligibility for public assistance programs. 

First party special needs trust 

Another type of special needs trust is a first party special needs trust. This type of trust holds assets directly contributed from the disabled person for the benefit of himself or herself. Many times, the first party special needs trust is utilized when the disabled person has received a sizable inheritance or has won a large award from a lawsuit in court. 

First party special needs trusts ensure settlements awarded in court do not affect public assistance eligibility of the beneficiary. 

Pooled special needs trust 

There are situations when the capital from a third party and first party special needs trust do not provide enough financial security for a disabled person. A pooled special needs trust will combine the resources of numerous beneficiaries into a fund. This fund would then be managed professionally by a non-profit entity. The reason for pooling resources together is to empower beneficiaries to take advantage of larger scale investments. Also, combining capital in this manner can make investing more cost-effective. 

One advantage of a pooled special needs trust is that the non-profit firm tasked with managing the assets in the pool of funds have specialized knowledge in special needs planning and will be caught up on the latest eligibility rules for receiving public assistance benefits. Of course, the manager of the fund will make decisions ensuring eligibility for government assistance will not be compromised. Also, since the non-profit organization is made up of many people with relevant skills and knowledge there will be no need to find a replacement for a trustee who has died. 

What type of special needs trust should you choose? 

The circumstances of your particular position will determine what type of trust you will need to set up. For example, a beneficiary with special needs who is in line to receive a large inheritance will have different requirements than a disabled person from an impoverished family with few assets. Therefore, take complete stock of your financial situation and objectives and be sure to fully educate yourself on all relevant aspects before making a final decision.