65 and Older
Beneficiaries 65 and Older
First-Party Special Needs Trusts: Pooled Trusts are the Only Option
Once a Beneficiary with a disability reaches the age of 65 years or older, federal law prohibits establishing a standalone first-party special needs trust, also called a D4A or self-settled trust, for that Beneficiary. [1] After the Beneficiary turns 65 years old, if the Beneficiary needs to establish a first-party special needs trust, then they must establish it with a pooled special needs trust, like CCT. [2] If your client is 65 years of age or older and they are setting up 1st Party Pooled Special Needs Trust with CCT, please complete the Attorney Checklist and submit it to CCT by email or mail.
First-Party Special Needs Trusts: Transfer Penalty
The issues surrounding transfer penalties are complex and vary from state to state, and can change within a given state with little notice. While a Beneficiary 65 years of age and older may establish a first-party pooled special needs trust, some states may consider transferring assets into this trust a transfer for less than fair market value that can lead to a transfer of assets penalty being imposed. The penalty period is based on the value of the transfer.
Whether a transfer penalty applies in a particular situation largely depends on the type of public benefits received (such as long-term care Medicaid), the state from which these benefits are received, and the client’s individual situation. Some states will not impose a penalty if certain exceptions to the asset transfer rule apply. These rules often also apply to adding funds to an existing first-party trust.
To determine if your state has transfer penalties and, if so, whether it is in the Beneficiary’s interest to transfer assets into a first-party pooled special needs trust, please consult with an attorney who specializes in elder law or special needs planning. The following organizations will provide referrals to attorneys in your area:
National Academy of Elder Law Attorneys
Third-Party Special Needs Trusts
A third-party special needs trust, whether pooled or standalone, can be established for any beneficiary with a disability at any time, regardless of their age or what type of benefits they receive.
[1] 42 U.S.C. § 1396p(d)(4)(A).
[2] 42 U.S.C. § 1396p(d)(4)(C).
Key Terms
First-party funds are assets belonging to or owed to the Beneficiary, like personal injury awards, inheritances to the Beneficiary directly, child support, etc.
Third-party funds are assets that belong to anyone other than the Beneficiary, like gifts or bequests made from family or friends directly to the third-party trust.
This information is meant for educational purposes only and it is not legal advice. For legal advice, please consult an attorney.
*Disclaimer Statement: CCT is not a chartered bank or trust company, or depository institution. It is not authorized to accept deposits or trust accounts and is not licensed or regulated by any state or federal banking authority.