First-Party, Third-Party Special Needs Trusts, Pooled Trusts: Choosing the Right Type for Your Family
The right special needs trust depends primarily on who owns the money being placed in it. A first-party trust holds the beneficiary’s assets, a third-party trust receives assets from relatives or others, and a pooled trust uses an individual account administered by a nonprofit organization. The trust structure you choose will affect your public-benefit eligibility, trustee responsibilities, and what happens to the funds after the beneficiary dies.
At The Law Office of Marialta Z. Sparagna, I help Connecticut families choose and establish trusts suited to their circumstances. With more than 18 years of legal experience, I serve clients in Bloomfield, Simsbury, Bantam, and throughout Hartford County and Litchfield County. My goal is to help you review your beneficiary assets, current benefits, future needs, and available trustees to identify the structure that best suits your needs. Contact me today to schedule a consultation.
How Special Needs Trusts Protect Public Benefits
Supplemental Security Income and many Medicaid programs impose financial eligibility limits. An inheritance, settlement, or other property received directly by a person with a disability may cause that person’s countable resources to exceed the applicable limit. A properly structured special needs trust can hold assets for the beneficiary without necessarily making them available resources.
The trustee controls distributions according to the trust document. The funds may be used to pay for items and services that support the beneficiary, including education, transportation, technology, recreation, personal care, and medical or dental expenses not otherwise covered.
However, distributions require ongoing attention. Direct cash payments may count as income, while payments for shelter can affect SSI. Other programs, including Social Security Disability Insurance and Medicare, generally do not use the same resource limits. In Connecticut, the Department of Social Services applies program-specific financial rules to HUSKY C and Medicaid waiver eligibility, so the trust should be coordinated with the benefits the person receives.
First-Party Trusts for Assets the Beneficiary Owns
A first-party special needs trust holds money or property belonging to the person with a disability. Common funding sources include personal injury settlements, inheritances received outright, savings, divorce awards, and retroactive benefit payments.
Under federal law, an individual first-party trust must generally be established for the sole benefit of a person who meets the applicable disability standard and is younger than 65 when the trust is created. The beneficiary, a parent, grandparent, legal guardian, or court may establish it. These requirements appear under U.S. Code 42 U.S.C. § 1396p(d)(4)(A).
After the beneficiary dies, the state must generally be reimbursed from the remaining assets for Medicaid benefits paid on the beneficiary’s behalf. Any funds remaining after the required repayment may pass in accordance with the trust’s terms.
This structure may be appropriate when someone receiving means-tested benefits unexpectedly acquires assets. Prompt review matters because retaining the assets personally or transferring them incorrectly may affect benefit eligibility.
Third-Party Trusts for Family-Funded Support
A third-party special needs trust is funded exclusively with property belonging to someone other than the beneficiary. Parents, grandparents, siblings, and other relatives can use this structure to provide future support without directly transferring assets to the person with a disability.
The trust may receive funds during the donor’s lifetime or later through a will, revocable trust, life insurance policy, retirement account, or other beneficiary designation. Because the beneficiary’s own assets do not fund the trust, a properly drafted third-party trust generally does not require Medicaid repayment when the beneficiary dies. Therefore, the person creating the trust can decide who receives the remaining property.
Funding designations must be coordinated carefully. If a will or account leaves property directly to the beneficiary rather than to the trust, the inheritance may affect means-tested benefits. The beneficiary’s assets should not be deposited into a third-party trust because mixing funding sources may create eligibility and repayment problems.
This option often fits families planning for a future inheritance and seeking control over trustees, distribution standards, and remainder beneficiaries.
Pooled Trusts and Nonprofit Administration
A pooled special needs trust is created and managed by a nonprofit organization. Each beneficiary has a separate account, but the organization combines the accounts for investment and administrative purposes. A beneficiary joins the existing master trust by signing an enrollment or joinder agreement.
Pooled trusts can hold the beneficiary’s own assets and may be practical when the amount involved does not justify creating and administering a separate first-party trust. They also provide an established trustee when no family member or financial institution is available to serve.
Pooled Trusts are used to assist people in obtaining Medicaid Waiver Benefits when their assets or income exceeds the maximum amount allowed to qualify for Medicaid. Medicaid Waiver programs include the Connecticut Homecare Program for Elders, which provides benefits such as personal care assistants so that an individual can remain safely at home. For more information about the Connectiut Homecare for Elders Programs, see https://portal.ct.gov/dss/health-and-home-care/connecticut-home-care-program-for-elders
Federal law does not impose the same under-65 establishment requirement on pooled trusts as it does on individual first-party trusts. Transfers made after age 65 may nevertheless create Medicaid transfer-penalty issues, depending on the benefit program and circumstances. Connecticut residents should evaluate those consequences before funding an account. Connecticut has only one Pooled Trust provider--PLAN of CT. PLAN of CT acts a trustee for Pooled Trusts. For more information about Plan, visit their website at https://Planof CT.org. Note, PLAN of CT requires individuals to work with one of their legal partners trained by PLAN of CT. Attorney Sparagna is a legal partner of Plan of CT. If you are considering applying for Medicaid so that you can access a the CHCPE program, contact me today to schedule a consultation.
After the beneficiary’s death, the nonprofit may retain some or all of the balance if the governing agreement permits it. Any amounts not retained generally must first reimburse the state for Medicaid benefits before passing elsewhere. PLAN of CT requires you to work with legal counsel that are trained by PLAN of CT and become members. Before joining, your family should review the organization’s fees, distribution procedures, investment practices, service standards, and remainder policy.
How to Choose the Best Type of Trust for Your Family’s Circumstances
The origin of the assets is the starting point, but it is not the only consideration. The beneficiary’s age, disability status, current benefits, anticipated expenses, funding amount, and available trustees can all affect which type of trust is best for you and your family.
An individual first-party trust may offer customized terms for a settlement or inheritance the beneficiary already owns. A third-party trust may preserve your family assets for future support while allowing the donor to choose remainder beneficiaries. A pooled trust offers nonprofit administration through an existing framework, although your family must accept the organization’s governing agreement.
Some families need separate trusts. A third-party trust may receive parental assets while a first-party or pooled trust holds funds owned by the beneficiary. Keeping those accounts separate can help preserve different Medicaid repayment and remainder rules.
Contact a Special Needs Trusts Attorney Serving Bloomfield, Connecticut
At The Law Offices of Marialta Z. Sparagna, I recognize that special needs planning involves personal decisions about care, finances, family responsibilities, and the beneficiary’s future. I will take the time to learn about your circumstances and develop a legal plan tailored to your goals.
My legal and corporate experience informs the practical approach I bring to trust planning and administration. If you cannot travel to my office, I can arrange a visit at a nursing home, hospital, assisted living facility, or wherever you call home.
Contact my firm today to speak with a Connecticut estate planning attorney and discuss whether a first-party, third-party, or pooled special needs trust is right for your family’s plans. Located in Bloomfield, Connecticut and Litchfield, Connecticut, I serve clients in Simsbury, Bantam, and the communities throughout Hartford County and Litchfield County.
