THE TWO TYPES OF SPECIAL NEEDS TRUSTS IN ILLINOIS
Special Needs Trusts allow for the money and assets held within them to be put towards the care and maintenance of a disabled person without the money and assets being considered the property of the disabled person. This prevents a reduction of benefits the person would otherwise qualify for and receive from Medicaid and other government benefits.
There are two major types of Special Needs Trusts in Illinois: A First-Party Special Needs Trust and a Third-Party Special Needs Trust. A First Party Special Needs Trust is funded using the assets and income of the disabled person. A Third-Party Special Needs Trust takes the assets and income of another person and funds the trust with those funds.
A First-Party Special Needs Trust cannot be established by just anyone. It must be created by a parent, grandparent, legal guardian of the disabled person, or the Court. Self-funded trusts must include language stating that Illinois Medicaid will be reimbursed after the beneficiary’s death. With a beneficiary dies under a self-funded trust, the state of Illinois must be compensated for all Medicaid benefits paid on the beneficiary’s behalf before any remaining assets are distributed to the heirs.
A Third-Party Special Needs Trust is created using another person’s assets. Therefore, the requirements are more relaxed. A Third-Party Special Needs Trust can be created by anyone; however, it is typically created by family members for a disabled individual. Family members can contribute and add to the trust without issue, and this type of Special Needs Trust provides the most flexible structure for long-term estate planning.
A Special Needs Trust is an important tool for guaranteeing that you can provide a gift or support for a disable heir, letting them know how much you care for them while also avoiding being an impediment to them as they receive necessary government assistance. Knowing the distinctions between the two types of Special Needs Trust is critical when establishing one to prevent tax liabilities or the loss of government aid.
If you have any family members who receive government assistance, are disabled, and do not currently have a Special Needs Trust, please contact the Law Office of Andrew Szocka, P.C. at (815) 455-8430. We are a well-established firm in Crystal Lake, Illinois with extensive experience in wills, trusts, and all aspects of estate planning. We’d be delighted to meet with you and discuss your long-term goals for your entire family.