What Kinds of Special Needs Trust?

A Special Needs Trust is a trust established to supplement government benefits.

Special needs trusts have four major types.

As with any special needs trust, these supplement federal aid and a special needs trust cannot pay for items that the aid is paying for.

Summary of Special Needs Trust

2 special needs trusts are directly authorized by federal law, 1 is allowed, and 1 is implicitly allowed.

The two directly allowed by federal law are authorized in § 1396p(d)(4)(A) and § 1396p(d)(4)(C).  These are sometimes talked about using just the last 4 letters: the (d)(4)(A) trust and the (d)(4)(C) trust (d4a and d4c).

Both the (d)(4)(A) trust and the (d)(4)(C) trust have a Medicaid payback provision.

(d)(4)(A) Trust

A (d)(4)(A) trust is a trust established with a person’s own money.  Until December of 2017, a person could not establish this type of trust themselves.  Other than the person, a guardians, judge, parent, or grandparent may establish this trust.  The other require is that the person is under 65 years old.

(d)(4)(A) in summary:

• Person is under 65 years old
• Established by the person, parent, grandparent, legal guardian, or judge (under judicial order)
• Medicaid payback provision
• Only the persons money allowed in the trust

(d)(4)(C) Trust

A (d)(4)(C) trust is a “pooled” trust.  A pool of many different people’s money is held in trust.  This type of trust doesn’t have the age restriction of the (d)(4)(A) trust.  But, it must still be established by a parent, grandparent, legal guardian, judge, or the individual.

While this is a pool of money, the individual’s money is used for and available only to the individual.

(d)(4)(C) in summary:

• No age restrictions
• Can be established by the individual, parent, grandparent, legal guardian, or judge
• Medicaid payback
• Managed by a non-profit trustee
• Unlimited funding allowed

Third Party Trust

Third party supplemental needs trusts are not explicitly allowed under federal law, but implicitly allowed.

The third-party trust is established with funds that do not belong to the individiaul.

With the third-party trust, people other than the individual contribute, the money never legally belongs to the individual, the money can be used for their benefit, then the money goes where you decide.

Anybody can contribute to the trust, in any amount.  The trust can contain any amount of money or property.

Again, the money is used to supplement government benefits, not replace them.\

• Contains assets only
• Is established by anyone other than the individual
• No age restrictions
• Unlimited assets allowed
• When the individual passes, the funds are distributed in full without Medicaid payback
• No Medicaid payback