Disclaimer: With Medicaid, VA, and insurance regulations frequently changing, past blog posts may not be presently accurate or relevant. Please contact our office for information on current planning strategies, tips, and how-to's.
Question: How does a d(4)(A) trust differ from third-party special needs trusts?
Answer: A d(4)(A) trust is a “self-funded” special needs trust. The money or property going into the trust belongs to the disabled trust beneficiary. This is the fundamental difference from a “third-party” special needs trust, which was established with money or property belonging to someone else – likely a parent or grandparent. Since the d(4)(A) trust was established with funds belonging to the disabled person, the spending of those funds is subject to stricter rules than the rules associated to a third-party special needs trust.
For example, any funds remaining in the d(4)(A)trust after the beneficiary’s death must first be used to pay back the state for any Medicaid benefits received by the beneficiary during his or her lifetime – payback requirement. As for a third-party special needs trust, any remaining funds can be directed to anyone. Also, funds in a d(4)(A) trust must be used for the disabled beneficiary’s “sole benefit,” whereas there is no such limitation with a third-party special needs trust. For these reasons, assets belonging to a third party should never be added to a d(4)(A) trust.
Finally, if a relative or friend wants to make a gift to an individual with disabilities, a third-party trust should be used to take advantage of the increased flexibility and avoid the payback requirement.