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Is a third-party special needs trust right for my son?

Let us say that your 16-year-old son Andrew was the victim of a car crash. He is permanently disabled and qualifies for Supplemental Security Income, or SSI.

However, Andrew is about to receive a large insurance settlement. Will this affect his ability to receive SSI? What is the next step?

Types of trusts

The main purpose of a special needs trust is to supplement the money a mentally or physically impaired person receives from a government program such as SSI. There are three types of special needs trusts: first-party, third-party and pooled trusts. Parents of children with special needs often find that the third-party trust best fills the beneficiary's needs.

A look at the differences

To qualify for Supplemental Security Income, a person with special needs must not have more than $2,000 to her or his name. The government will not object to an insurance settlement as long as that money funds a special needs trust. In this way, Andrew can continue to participate in the SSI program. Here are the main differences between the types of trusts:

  •         If Andrew is the beneficiary of a first-party special needs trust, any funds remaining in the trust after his death go to the government as reimbursement for his medical care.
  •         A pooled trust is one established through a charity. Beneficiaries pool their resources while maintaining separate accounts. Funds remaining after a beneficiary‚Äôs death mostly go to the government for medical care reimbursement, but a portion goes to the charity that managed the trust.
  •         A third-party special needs trust can hold assets of all kinds, including stocks, bonds and real property. It operates much like the first-party trust except that after Andrew dies, any remaining assets can go to family members or even to a favorite charity rather than to the government. This is why the parents of special needs children often prefer the third-party option.

Seeking help

Selecting the right trust for your son is an important decision, one for which you want legal guidance. Ensuring that Andrew has the best of both worlds, his government benefits plus the proceeds from the insurance settlement, will obviously be your top priority.

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At Hodges Law Firm, we handle a wide range of legal issues for clients throughout the Atlanta area, including elder law, estate planning, probate, Medicaid planning and protection, asset protection, litigation, and business law and services. We are knowledgeable in the law and understand the real life implications of legal actions.