Setting up a special needs trust (SNT) can be a great way to plan for your loved one with disabilities. Understanding the distinction between first-party and third-party SNTs is essential for maintaining eligibility for benefits under state law.
Defining a first-party SNT
A first-party SNT refers to a trust funded by the individual with a disability. This typically occurs following a personal injury settlement or retroactive Social Security payments. Since 2016, individuals with disabilities under age 65 years old may establish their SNT without needing a third party or the court to sign paperwork if they have the capacity to do so.
While this trust shields assets to preserve eligibility, it carries the payback provision. Upon the beneficiary’s passing, federal and state laws require a reimbursement up to an amount equal to the total medical assistance paid on behalf of the individual. If any funds remain after this deduction, other beneficiaries can receive them.
Outlining a third-party SNT
A family member can create a third-party SNT for their child or grandchild with a disability. If you are the grantor, you use your assets to fund this arrangement. Since this is not subject to the payback requirement, you retain the power to decide where the remaining principal goes after your loved one passes.
Navigating the nuances of Connecticut law
Neither first-party nor third-party trusts count as an available asset. This means your loved one can retain their trusts and still qualify for the HUSKY Health Program, provided they satisfy other mandated requirements. While true, the administrative requirements for these trusts are strict. A single mistake can affect your loved one’s eligibility.
If you are currently setting up a third-party SNT, it would be best to seek advice from an attorney. They can help you structure the trust to meet the legal standards and ensure your loved one remains eligible for health care benefits.