Types of special needs trusts (SNTs)

A special needs trust (SNT) is a legal document drawn up by an attorney with special needs experience. A properly drafted SNT can receive assets for the benefit of the beneficiary.

When it’s time for the assets to be distributed, your loved ones can receive the SNT funds without losing their government benefits in the process. The following information can help you choose the right SNT for your situation.

First-party trust

If you are a person with disabilities or special needs, you can set up a first party special needs trust. Add to it your unexpected inheritances, child support and even structured settlement money. This will protect your needs-based government benefits that provide funds for housing, medical care and food.

Keep in mind, if you’re receiving Medicaid, a payback provision to reimburse the money paid for your care will be required, at the time of your death. This may prevent secondary beneficiaries from receiving the remaining balance of SNT funds, as state programs will recapture the cost of Medicaid benefits paid.

Third-party trust

Caregivers and family members, this is an SNT you can set up for your loved one. Place money from parents, grandparents, or any other source into the trust for future use. Even if you don’t have money to put into it immediately, set up your third-party SNT now, refer to it in your will and beneficiary designations, and it will be funded upon your death.

With the SNT protecting your loved one’s government benefits, the money it contains can be spent on supplemental eligible expenses, such as hobbies, travel and quality of life. And, because it’s a third-party special needs trust, Medicaid cannot recapture assets from it.

Pooled trust

As an alternative to setting up your own trust, you can join with other people in special needs situations and have a shared trust. Pooled trusts can be either first or third party, so ask your advisor or a local nonprofit organization that may sponsor a pooled trust.

ABLE account

While it’s not actually a type of trust, an ABLE account is an additional option for accumulating assets. It’s a qualified savings account that receives preferred federal tax treatment. An ABLE account allows you to save for disability-related expenses like assistive technology, employment training, legal fees, living expenses and more. ABLE accounts may also be subject to Medicaid payback depending on your state.

To find out which ABLE accounts are best for you, contact a Voya financial advisor or log on to the ABLE National Resource Center at ablenrc.org.

Action steps:

  • Choose which type of SNT, if any, is the best choice for you.
  • Consider an ABLE account.
  • Find a special needs attorney.
  • Update your beneficiary designations to the SNT, where necessary.
  • Talk to a financial advisor to get started.

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