Special Needs Trusts are used to supplement a disabled person’s lifestyle rather than to replace government benefits. By establishing a Special Needs Trust, the assets are made unavailable and do not affect government programs that are based on income or assets.
There are two types of Special Needs Trusts. The first is a third party Special Needs Trust, which is established by a third party with their own assets for the benefit of a disabled person. This type of trust is usually set up by a parent for the benefit of a disabled child. It is important to draft this Trust in such a way as to not make the assets or the income of the Trust available to the disabled individual so as to disqualify them for public benefits. In this type of Trust there is no need to be concerned with Medicare claims and Medicaid liens do not have to be paid back on the death of the beneficiary.
The second type is a self settled Special Needs Trust, which is established with the assets of the disabled person. It must be established by the parent, grandparent, guardian of the disabled person, or by the court. This type of Trust is commonly used when the injured party receives money as a result of a lawsuit involving a claim for personal injuries. This Trust is established during the lifetime of the disabled person. In this type of Trust you must be concerned with Medicare claims and Medicaid liens. On the death of the beneficiary any assets remaining in the Trust must be used to pay back any Medicaid liens.