Estate Planning for Special Needs
If you have a loved one with special needs, you may be used to working with private physicians and schools or Pennsylvania educational and medical institutions to ensure that they receive the care they need. There are several types of special needs trusts in Pennsylvania and it is important to understand the differences in order to decide which type best suits your family’s needs.
First Party Trusts
A first-party trust and can be used when the beneficiary of the special needs trust is the person whose assets or property are going to fund the trust. This type is often utilized by a disabled individual in order to allow them to qualify for medical assistance from the state.
In order to set up a first-party trust, the person who is going to be the trust beneficiary must be under the age of 65. If this is you, you are allowed to make contributions to the trust after creating it until you turn 65, but you cannot make any contributions thereafter. If you withdraw income or principal from the trust it must be used for your sole benefit. The trust has to include a provision that provides for reimbursement in the amount equal total to the medical assistance paid by the Pennsylvania Department of Human Services because if the trust did not exist, the resources that were put into the trust would have been considered in determining the beneficiary’s eligibility for medical assistance.
The rules regarding first-party special needs trusts in Pennsylvania can be complex. If you are interested in creating a special needs trust, call us today at (610) 562-2000 or contact us here.
Third Party or Supplemental Needs Trusts
Another type of special needs trust is called a third-party trust and can be used when you have decided to fund a trust for another special needs beneficiary, perhaps your child or another relative. This type of trust is also called a supplemental needs trust. Its existence must be reported to your county if the trust beneficiary applies for medical assistance, and the county will decide whether it should count when determining the beneficiary’s eligibility.
If you are considering leaving money to a loved one with special needs, creating a supplemental needs trust allows them to use the money you intend to leave them without jeopardizing any medical assistance they currently receive.
Educational trusts are typically established when a family is engaged in litigation against a school district in order to obtain services for a special needs child. The proceeds to be used for the child’s education are placed in the trust, and any money remaining when the child exits school is returned to the school district. These trusts can also be counted as assets when determining an individual’s eligibility for medical assistance, but do not have to be. It is up to your county to make the ultimate decision.
Choosing a Trustee
If you decide that a special needs trust is appropriate for you or your loved one, sitting down with an attorney to make the decision of who to choose as trustee is critical. The trustee will manage all of the funds on behalf of you or your relative, and since the funds in the trust may be used for either daily expenses or specific medical or therapeutic needs, it’s important to choose someone who understands those needs and can make the best choices possible. This person also needs to have adequate time to devote not just to overseeing the trust but checking in on the beneficiary and handling their evolving needs.