Many families in Massachusetts have at least one child with special needs. Planning for the future economic well-being of such a child is often a heavy burden with unforeseeable consequences. One method of easing that burden and ensuring a favorable outcome is the establishment of a special needs pooled trust.
Massachusetts law permits the establishment of a trust for any person who has special needs, such as a physical disability, learning disorder or mental illness. The trust is funded with either the beneficiary’s personal assets or assets from a third party, such as the settlement of a court case against the party whose negligence caused the disability or a gift from a relative.
An especially useful type of special needs trust is the pooled special needs trust. A pooled special needs trust is formed by combining the individual trust accounts for all beneficiaries. The trust assets are then managed as a unit to provide income and benefits for all of the beneficiaries. Pooled special needs trusts are categorized based on the source of the assets. A first-party special needs trust uses assets originally owned by the beneficiaries. A third-party special needs trust comprises assets from a source other than the beneficiary’s assets.
Special needs pooled trusts are closely regulated by both state and federal governments. Trust assets cannot be used to purchase gifts or to benefit someone who is not a beneficiary. A significant benefit of special needs trusts is their tax treatment by both state and federal governments. Income earned by assets in the trust is not taxable, and payments to beneficiaries for approved trust purposes are likewise free from income taxes. Those involved in such situations can often benefit from contacting an attorney experienced with special needs issues.