When the beneficiary of a special needs trust passes away, what happens to their assets? There are several different options, but all involve taxes. First, a SNT may be funded by a third party, such as a parent or relative. If not, a third party can fund it on its own. A third-party trust is typically funded at the time of the creator’s death, when the primary beneficiary is no longer living.
Alternatively, a will can name a trustee who will be responsible for the trust and will be devoted to the beneficiary. Typically, this is a relative, but you can also designate a professional fiduciary or trustee. In any case, make sure you discuss this decision with a qualified attorney. The trustees’ job is to manage the trust’s assets, but there are also options for the beneficiary to choose their own trustee. After the beneficiary passes away, any remaining funds will be passed to the beneficiaries, or they can choose to donate them to a favorite charity.
If the beneficiary of a special needs trust received Medicaid benefits from the state, the trust would owe the state money. However, most third-party special needs trusts do not include a Medicaid payback provision. First-party trusts are funded with assets from the beneficiary, which could be from a lawsuit settlement or inheritance. If a special needs trust receives Medicaid funds, it will have to reimburse the state for all of its Medicaid expenses.
A third-party special needs trust is funded by assets owned by someone other than the beneficiary. A grandparent, parent or other family member will create one under a will. In addition, a third-party special needs trust can be funded with cash, life insurance, and other assets. When the beneficiary dies, the assets in the third-party special needs trust can be distributed to designated beneficiaries, which will avoid Medicaid payback requirements. Alternatively, a third-party special needs trust may be funded by an inheritance or personal injury award.
Typically, parents create a special needs trust for their disabled children. However, the trust can be set up for anyone with special needs, including siblings. In fact, some children and spouses create special needs trusts for their parents when they are diagnosed with Alzheimer’s disease or dementia. As long as the trust contains a clear purpose and beneficiaries aren’t abusing the trust, it can help the beneficiary live a better life.
There are several types of special needs trust. First-party special needs trusts are funded with the beneficiary’s assets. A third-party special needs trust, on the other hand, is funded by a family member or third-party. Ultimately, the question is what happens to a special needs trust at death. If you are worried about your loved one’s future health, a third-party special needs trust may be the best option for your family.
A special needs trust, or SNT, is a legal arrangement in which an individual or family group makes arrangements to manage their assets after death. These trusts often require the beneficiary to be under 65 to qualify. The trust funds are intended to supplement public benefits, such as Social Security, by paying for items or services that are not covered by benefits. The SNT also has no impact on eligibility for public assistance disability benefits.
When someone dies, a special needs trust provides for the beneficiary’s needs and preserves eligibility for government benefits. A qualified attorney can help you create a trust that suits your needs and will help keep your beneficiary’s eligibility intact. If you are concerned about the impact on your beneficiary’s government benefits, it is important to consult with an attorney who specializes in special needs trusts. The following are the common questions that arise with a special needs trust.