Special Needs Trust

First-party special needs trusts, or self-settled special needs trusts, are funded with assets of an individual with disabilities, often from a court settlement or inheritance. Adults with disabilities under 65 may establish these trusts without court involvement, but minors or those deemed legally incompetent require a guardian or court to do so. These trusts are often referred to as “payback trusts” because, upon the beneficiary's death, remaining assets must first reimburse the state’s Medicaid agency for any costs incurred during the person’s life. After Medicaid is repaid, then remaining assets may pass to other beneficiaries.

Third-party special needs trusts are typically created and funded by loved ones of a person with special needs. These trusts may be drafted as a stand-alone legal document or included in a last will and testament or living trust.

These trusts exist throughout the person's life and may be funded from multiple sources. If included in a will or living trust, funds are distributed only after the death of the individual who established it. Upon the beneficiary's death, there is no Medicaid paid back from trust assets. Instead, funds pass to the remainderman as designated by the person who established the special needs trust.