Are you considering using a special needs trust to provide for yourself or a loved one? This legal and financial vehicle can protect assets and help ensure continuity of care throughout the person’s lifetime. But most people aren’t very familiar with a special needs trust and have many questions.

If you’re among those, here are a few answers about how to fund such a trust and what happens with those funds.

Can You Fund Your Own Special Needs Trust?

Special needs trusts come in two basic varieties. First-party special needs trusts are funded by assets that belong to the beneficiary. Third-party trusts are funded by others. First-party trusts are often started by adults who receive a diagnosis involving special needs later in life — after they have accumulated assets. Other common sources are inheritances through wills or trusts as well as legal or insurance settlements.

Placing these assets in the trust generally prevents them from disqualifying the person from other benefits, including government programs. However, the trust generally must be irrevocable, meaning that the individual has no control over the funds themselves and cannot later change that.

Can Others Fund a Special Needs Trust?

Do others want to contribute to the trust? Third-party special needs trusts are funded by assets contributed to the trust by other individuals.

Family members, friends, or others who want to contribute to the care of a loved one who has additional needs can help in this way. A third-party trust may also include funds gathered through crowdfunding campaigns.

Like first-party trusts, third-party trusts generally also must not be in the control of the beneficiary. There are some different regulations, though, regarding the final distribution of money.

How Can Funds be Spent?

For most trusts, the trustee can decide how to use funds for the benefit of the beneficiary. This allows plenty of leeway to provide for medical care, therapy, accommodations, daily living costs, or alternative treatment.

The trustee could, for example, use funds to purchase a house, a vehicle, physical adjustments to the living quarters, and items that will assist in reaching therapy goals (such as vocational training or aids). While funds may be given to the beneficiary in cash, cash should be kept within strict limits to avoid eligibility problems.

Of course, the trustee is responsible are using the funds only for the needs and uses of the beneficiary. The trustee also may not spend the money on anything that is illegal, such as treatments that may not be legal in a given jurisdiction.

What Happens to Leftover Funds?

Upon the death of the beneficiary of the trust, the ultimate disposition of remaining funds depends on the type of trust that was set up. Generally, first-party special needs trust funds are required to be distributed to reimburse agencies or providers for costs (such as Medicaid). Because these funds were assets of the individual and were not used to determine eligibility for programs, they are must go toward reimbursements.

However, third-party special needs trusts are different. Generally, the trust is able to determine what will happen to funds that are left over when the beneficiary has passed away. This is a good way for families to care for an individual with special needs while keeping the remaining assets within the family.

Where Should You Start?

Before you set up a special needs trust, begin by consulting with an experienced family law attorney. At Life’s Plan, Inc., our experienced legal team can help you determine what type of trust to set up, how to fund it, and what provisions will lead to the best outcome. Call today to make an appointment.