Types of Special Needs Trusts
Special needs trusts help you protect benefits and manage long term support for a loved one with a disability. When you understand the main types of special needs trusts, you can choose a structure that fits your family’s goals and the beneficiary’s daily needs. Each option follows rules designed to preserve eligibility for programs like SSI and Medicaid, so selecting the right trust matters.
First Party Special Needs Trust
A first party special needs trust holds the beneficiary’s own assets. These funds often come from a settlement, an inheritance placed in their name, or an account that cannot remain under their direct control. A parent, grandparent, guardian, or the court can create the trust. Because federal rules require payback, any remaining funds reimburse Medicaid for covered services when the beneficiary passes away. This type of trust works well when assets already belong to the beneficiary and you need to preserve eligibility for essential benefits.
Third Party Special Needs Trust
A third party special needs trust uses assets that come from someone other than the beneficiary. Parents and relatives usually create these trusts as part of an estate plan. They can fund the trust with life insurance, savings, or gifts during life. This structure does not require Medicaid payback, so any remaining funds can pass to other heirs or charities. Because of this flexibility, many families choose a third party trust for proactive planning and long term security.
Pooled Special Needs Trust
A pooled special needs trust uses a nonprofit organization to manage funds. The nonprofit combines assets from many beneficiaries for investment purposes but keeps separate sub accounts for each person. This model offers professional administration and can reduce costs, especially when the available assets are modest. Depending on the program, a portion of the remaining funds may stay with the nonprofit when the beneficiary dies. Before choosing a pooled trust, review the organization’s rules and services. You can explore examples through resources like the National Pooled Trust Network and the Special Needs Alliance.
How to Choose the Right Option
Your decision depends on how the trust will be funded, how much control you want, and who will manage the assets. First party trusts help protect benefits when the beneficiary already owns the funds. Third party trusts provide more control and flexibility when you plan ahead. Pooled trusts offer professional oversight when families want support with investment or administration. When you weigh these choices, focus on the beneficiary’s long term needs, their benefits, and the level of involvement you can provide.
Get Legal Guidance You Can Trust
Selecting the right special needs trust is a major decision. At Metropolitan Law Group, we help families in Arizona, Minnesota, and Wisconsin create plans that protect benefits and support lifelong care. To discuss the types of special needs trusts and find the right fit for your situation, book a complimentary 15-minute Discovery Call with an experienced staff member. You can also call our Arizona office at 480-409-8200 or our Minnesota and Wisconsin offices at 612-524-9414.
