A special needs trust is a specific kind of trust that can be created to benefit children and adults with disabilities. Whether you’re caring for a special needs child or have a family member who has developed a medical problem and needs a trust to ensure their financial safety, there are several kinds of several needs trusts available to you. However, special needs trusts differ by state, and each state has different rules that apply.
Type 1: Family Trust. A family trust is usually created by the parents of a child with disabilities. These trusts can be testamentary, meaning they are created through the parent’s last will and testament, or living or “inter vivos” trusts, meaning the parents create it while they are still alive. Family trust property, however, usually cannot be used for basic needs such as housing or food, as this may interfere with government benefits from Social Security and Medicaid.
Type 2: Pooled Trust. A pooled trust is one created by a non-profit agency for the benefit of an individual with special needs and funded by family members or, in some cases, with the individual’s funds. The individual’s family, such as grandparents, aunts or uncles, can place property in the trust, but the family does not have the same type of control over the assets as with a Family Trust.
Type 3: Court Ordered Trust. Also called a “first-party” special needs trust, these can only be established by a court, a legal guardian, or a parent or grandparent of a person with disabilities. In these trusts, the person with disabilities actually owns the trust property, but the person must be under 65.
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