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Understanding different types of special needs trusts

Personal injury settlements can provide individuals with the financial resources they need to pay for long-term care. However, without special planning, the money can be subject to tax penalties. In addition, if it is not invested correctly, it can prevent individuals from qualifying for the financial assistance they need from programs such as Medicade and Supplemental Security Income.

In New Jersey, the most effective thing to do with money won in a personal injury settlement is often to put it in a special needs trust. Special needs trusts, also called supplement care trusts can be created in a way that allows individuals to keep their money without disqualifying them from governmental assistance.

There are various types of special needs trusts created to address the people's varying situations. An individual special needs trust is created by one person if he or she has a dependent with special needs. The trust can be used to help ensure the person maintains a high quality of life, and it can be used to cover things that financial assistance from the government would not pay for.

Another type of special needs trust is an institutional or first party special needs trust. Institutional trusts are typically used when an individual becomes injured because of an accident, and the money that is used to fund the trust is provided through the settlement from a lawsuit.

Although everyone has different needs relating to their specials needs trusts, effective estate planning can typically meet almost anyone's concerns.

Source: Reuters, "Putting the special in special needs trusts," 4 March 2011

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