An Understanding of special needs trusts is important for those people in your life that need protection. Special needs trusts help protect special people.
Hi, I’m Gary DeWitt, Estate Planning Attorney in Northwest Arkansas.
Understanding Special Needs Trusts: Major Types
Special needs trusts come in many different types that fulfill different purposes.
For your understanding, you need to know that special needs trusts come in 2 major types.
Understanding Special Needs Trusts: First Person Trust
The first is the “first person” special needs trust. This is a trust setup for a person’s own money. For example, if somebody that is on benefits got hurt in a car accident and received a large lump sum settlement, a “first person” special needs trust would be used. This type of trust has one major drawback; Medicaid gets the first opportunity to get paid out of the trust at the person’s death. You may sometimes hear these referred to as the pooled trust or a d(4)(a) trust.
Understanding Special Needs Trusts: Third Person Trust
The second is the “third person” special needs trust. This type of trust holds money that never belongs to the person with special needs. So, if mom and dad have life insurance, they can have it paid into a third party special needs trust. Because the money is only used for the person’s benefit, but doesn’t ever belong to them, the person putting the money into can leave further instructions.
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