Special Needs Planning

Special Needs Trusts and Planning

Special needs trusts help disabled and incapacitated Arizona individuals take advantage of public benefits programs and other planning opportunities.

A special needs trust is often created to help a disabled person qualify for needs-based government benefits. Needs-based benefits are those provided by the federal or state government to individuals who fall below certain income and resource limits. Benefits include Supplemental Security Income (SSI), Medicaid and, perhaps most important, the Arizona Long Term Care System (ALTCS).

There are multiple types of special needs trusts, such as first- and third-party trusts.

First-Party Trusts

A “first-party trust” is created with resources belonging to the disabled person. If the person owns resources that are valued greater than the resource limit for SSI and ALTCS, the law allows for those resources to be moved over to the trust. Those resources become non-countable in the eligibility determination process.

Common situations giving rise to the need to establish a first-party special needs trust are the receipt by the disabled person of an inheritance or a settlement from a personal injury claim. Consider these key points:

They can only hold assets that belonged to the disabled person, and not someone else’s resources

They must be created before the disabled person turns 65

They cannot be established by the disabled person; only the following may establish a first-party special needs trust: a parent, a grandparent, a guardian or a court.

The State of Arizona must be designated as the primary beneficiary of anything remaining in the trust when the beneficiary dies, for reimbursement purposes.

Third-Party Trusts

The other common type of trust is one created by someone other than the disabled person (most commonly a parent, grandparent or other family member). It is referred to as a “third-party trust.” Since those resources never belonged to the disabled person, they will not count as a resource for those needs-based programs. These trusts allow the trustee full discretion on using the resources for the benefit of the disabled person. Unlike first-party trusts, the state is not a beneficiary, allowing the person creating the trust to designate anyone as a final beneficiary.

Our experienced planning attorneys can help you understand these trusts and guide you toward the creation of the proper trust that will supplement available government benefits.

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