A trust is a type of financial tool that allows money to be transferred to another party in a manner that is regulated and controlled. Before the money is transferred to the receiving party, it is held “in trust”, and often released only under certain conditions (such as when the person turns a certain age or graduates college, etc.).
The person creating the trust is called the “settlor.” The person or party receiving the property is called the “beneficiary.” The party that holds and manages the property on the settlor’s behalf is called the “trustee.” Understanding these terms is important for learning how trusts operate, and which parties are involved.
There can be many different types of trusts, depending on the needs and desires of the settlor. Depending on their aims, they may use different types of trusts for transferring property. If you have a relative or close friend who is disabled, then they may need certain types of trusts that apply to their circumstances. These can provide legal mechanisms for transferring or managing property and funds in ways that don’t interfere with their other rights under the law.
A standard special needs trust is a specific type of trust that is set up for a disabled person. Such trusts are typically set up by their parents. This is often set up for the purpose of transferring funds or property to the person, without disqualifying them from receiving various types of government benefits like Medicaid.
In most cases, the property is transferred to the disabled person when their parent(s) pass away. However, special needs trusts can be used for other types of distribution situations and needs. Generally, they help provide supplemental care beyond what the government benefits may provide.
In comparison, a court-ordered special needs trust is one that is used only under very specific circumstances. These circumstances typically involve instances where the disabled person has inherited sums of money, or has been granted settlement money through a court proceeding.
These types of transfers cannot be put into standard special needs trusts. Instead, they are placed into a court-ordered special needs trust, which are also called “Type A” special needs trust. Laws may vary by state regarding the requirements and procedures for setting up and maintaining a court-ordered special needs trust.
To begin with, there is usually some court interaction or court instructions regarding the funds that are to be placed in the Type A trust. As mentioned, these are usually connected with either inheritances or previous court settlements. After this, the court-ordered special needs trust will need to be formally drafted up and created by someone on behalf of the disabled person.
Unlike other types of trusts, only certain qualified parties can do this, including:
- Parents of the disabled person; in some instances, a grandparent can also set one up;
- Legal guardians of the person; and
- The court itself.
Also, the disabled person must meet various other requirements. These may include certain Social Security standards; they must also be under 65 years of age, and must have a legally recognized disability that qualifies according to other various requirements.
It is important to note that leftover funds from the court-ordered trust will be paid back to the state of residence upon the disabled person’s death. The exact amount of funds that are repaid is based on the amount of medical assistance they received from the government.
Court-ordered special needs trusts are generally subject to more restrictions and legal monitoring. This is due to the fact that the funds are typically stemming from some sort of existing legal proceeding in the court.
More personal transfers of funds may require a different type of special needs trust to be created. Alternatively, different financial tools may also be employed, such as a specific type of will or other estate planning devices.
If you are still unsure as to whether a court-ordered trust is appropriate for your situation or your loved one’s needs, then you may need to consult with a lawyer and explore different types of trusts or other financial tools.
Court-ordered special needs trust are highly specific legal devices, and have many different requirements in order to set them up. You may need to hire a wills, trusts, and estates lawyer if you need assistance setting up or creating a court-ordered special needs trust.
Your attorney can help you interact with the court to ensure that the trust is set up properly, and that the recipient of the funds is legally qualified for the distribution. Also, if you need to appear in court or file a legal claim over a trust dispute, your attorney near you can assist with resolving those matters as well.