3rd Party Special Needs Trusts vs HESM Trusts

Posted by Ned Armand, President of Eastern Point Trust Company on Dec 3, 2014

According to the U.S. Census Bureau, nearly twenty percent of U.S. children under the age of 18 have special care health needs and/or special educational needs.

The Reality

A family’s ability to provide their family members the level of commitment and care they need can often be challenging enough even before you combine the increased cost of care associated with a special needs family member.

The Universal Problem

Special Needs Trust, Health Education Support and Maintenance, Kiss Trust

Common for all families with special needs persons is the associated increased cost of living. Most families are able to provide for their family members with special needs but, what if something was to happen to the caretaker themselves? Depending on the severity of the family member’s circumstances, the incapacity or loss of their own caretaker can prove to make their lives permanently more difficult.

Give a Fighting Chance

Providing a safety net for family members with special needs can be done cost effectively and easily via entities such as 3rd party special needs trusts (SNT) for individuals receiving government benefits; or a Health Education Support and Maintenance (HESM) Supplemental Needs Trust for individuals who do not receive government benefits.

A 3rd party special needs trust is commonly created by family members with current gifts, or future property in their estate such as life insurance or inheritance. By using a 3rd party SNT, the beneficiary’s government benefits such as SSDI and Medicaid are preserved. However, the use of assets of the trust must follow guidelines and can only allow distributions for:   

  • Home improvements and repairs
  • Travel and education
  • Recreation and entertainment
  • Medical insurance
  • Telephone bills
  • Internet and Newspaper subscriptions
  • Services of a care manager
  • Vacations
  • Travel expenses of relatives
  • Pay per view entertainment or Movies
  • Tax payments
  • Medical treatment for which public funds are unavailable
  • Difference between a private and semi-private room in an institution
  • Installation of a burglar alarm
  • School tuition, books and supplies
  • Health and Life insurance premiums
  • Cleaning supplies and paper products
  • Dental care, physical therapy, massages, support services, and other medical costs not covered by any benefit programs
  • Home care services not covered by another program
  • Personal services, including lawn mowing, house cleaning, grocery shopping and babysitting
  • Airline and other transportation tickets

By comparison, a Health Education Support and Maintenance Supplemental Trust is not a special needs trust and is commonly used for compromised family members who either do not qualify or choose not to receive state and federal benefits.  With an HESM trust there are no restrictions on the types of distributions the trust can make.  However, HESM provisions are not exclusively for special needs use and can be implemented within any type of trust to provide Health Education Support and Maintenance to any individual the grantor sees fit.

Uncertainty of Need

Certain conditions such as degenerative diseases, Asperger’s or autism create uncertainty regarding the future functioning level and ability of the impacted family member. Having a trust which can change into a 3rd party special needs trusts or Health Education Support and Maintenance Supplemental Trust is crucial in designing a proper solution able to address all future needs.

Plan Today for Tomorrow

Many individuals and their families unfortunately begin the process of planning for themselves and their own family’s future too late in life. The possibilities of a family member becoming special needs are very real, but by creating a HESM trust or a trust with a special needs provision that can “activate” if something were to happen, you are ensuring the best possible future for your loved ones by preparing today.

Download our free Special Needs Trust assessment sheet below to learn more!

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Comparing 1st Party vs 3rd Party Special Needs Trusts

Posted by Ned Armand, President of Eastern Point Trust Company on Oct 22, 2014

There is often confusion regarding the difference between 1st Party Special Needs Trusts and 3rd Party Special Needs Trusts.

Both types of trusts are designed to protect the Beneficiary's eligibility for government assistance benefits.

Special Needs TrustA 1st Party Trust is one you create for yourself and is usually associated with receiving a disability or injury legal settlement. You must also inform the state you live in and the Social Security Administration of a 1st Party Trust you create.                  

A 3rd Party Trust is established and funded by someone other than the Beneficiary, typically a family member such as a parent, grandparent, sibling, or other unrelated person. You do NOT have to inform the state you live in or the Social Security Administration of a 3rd Party Trust created for you. 

Distribution Processing 

While the establishment of the two kinds of Special Needs trusts is different, the category of eligible expenses of both is the same. A primary benefit of a Special Needs Trust is that is allows Beneficiaries to continue to receive all government assistance they would otherwise be entitled to because of their special needs.          

Upon proper documentation, the trustee of the trust may approve an ongoing automatic monthly or quarterly distribution to meet regular ongoing fixed expenses. 

One-time and extraordinary expenses are typically paid directly to the vendor by the trustee. 

Examples of Allowable Distributions 

The following is a partial summary of the types of allowable distributions found in a Special Needs Trust. (Note: Distributions are in compliance with the related United States Code, Social Security Income, state statutes and regulations. This list is a partial summary.) In general

  • any and all reasonable expenses incidental to the implementation of a "life care plan"
  • medical, dental, rehabilitative, therapeutic and diagnostic treatments, therapies, interventions, evaluations, care and equipment, necessary or life-saving, professional therapy and behavior management programs
  • medical, physical, and mental health care needs
  • reasonable compensation and appropriate expenses for care givers
  • attendant care and adaptive aids and equipment for personal needs
  • private insurance coverage
  • travel costs associated with access to medical, physical and/or mental health care services
  • tuition, fees, costs and expenses related to educational and training needs and opportunities of all types
  • travel and transportation costs to and from any school or residential accommodation removed from the residence of the Beneficiary
  • purchase of a residence  that is customized and adapted to accommodate the Beneficiary’s special needs
  • alterations and adaptations to a residence
  • appropriate modes of transportation
  • appropriate home-based and community-based recreational opportunities and social initiatives
  • appropriate furniture and furnishings
  • expenses associated with periodic vacations and sabbaticals for the benefit of the Beneficiary
  • such technological equipment as may enhance quality of life or education or training
  • professional services rendered for the benefit of the Beneficiary
  • improvements to a vehicle to protect the safety of the Beneficiary

Get Started Today

Ensuring you are using the correct type of Special Needs Trust is critical. Click below to learn more about Special Needs Trusts.  

 Learn More About Special Needs Trusts

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