There are two different types of special needs trusts (SNTs). The first is a "self-settled" special needs trust. A self-settled trust is typically a trust that an individual creates and funds with his or her own resources. In the case of a self-settled special needs trust, however, with the exception of a pooled trust (described below), the disabled individual cannot create the trust. Federal law requires that it be created by a parent, grandparent, guardian or court. The disabled individual's own resources, however, are transferred to the trust. This is commonly referred to as funding the trust. These trusts have one major disadvantage over a third-party special needs trust (described below): a payback provision must be included in the trust document. What this means is that any state that has rendered Medicaid assistance will be paid back to the extent of such assistance out of the remaining funds in the trust. This occurs, however, only upon the death of the disabled individual. Third-party special needs trusts are not required to have such a payback provision. Self-settled special needs trusts with the exception of pooled trusts must be established and funded before the disabled individual attains the age of 65.

"Pooled" trusts are also self-settled special needs trusts. These trusts are typically used when the disabled individual is over the age of 65 or is under 65 and does not have a living parent or grandparent to create the trust. Of course, even if there is no living parent or grandparent, the court or the individual's guardian may create a special needs trust for individuals under the age of 65.

Pooled trusts are managed by a non-profit organization. Currently, there is one pooled trust in Connecticut, PLAN of Connecticut. Other states have similar pooled trusts as well. In the case of the pooled trust, the trustee opens a sub-account for each disabled individual and the assets are pooled for investment purposes. Because pooled trusts are self-settled trusts, the disabled individual's assets are subject to the payback provisions referred to above. While federal law permits the disabled beneficiary to elect to have the trust assets remaining at his or her death to be used for the benefit of other disabled individuals who are participating in the pooled trust or provide that the remaining trust assets be paid back to any state that has rendered medical assistance (payback provisions), the State of Connecticut currently takes the position that only the payback option may be elected.

Third party special needs trusts are trusts that are both created by a third party other than the disabled individual (like a parent or grandparent) and are funded with assets of a third party. Thus, the disabled individual's own assets are not transferred to a third-party special needs trust. These trusts may be inter vivos or testamentary meaning that they can be effective during the third party's lifetime or after his or her death. Unlike self-settled SNTs, third-party SNTs have the advantage of not requiring a payback provision to any state which has rendered medical assistance upon the disabled individual's death. Thus, other family members may inherit trust assets remaining after the disabled individual's death.

Planning for both the resources of the disabled individual and to ensure that he or she can maintain or become eligible for SSI or Medicaid requires care. Further, estate planning for clients who have disabled children or other disabled family members who they want to benefit either during their lives or after death, requires competent legal counsel. The interplay of both federal and state law makes this area of practice even more challenging.

The trustee of a SNT has a unique set of responsibilities. The trustee must be keenly aware of the unique issues pertaining to distributions of trust principal and income when disabled individuals are beneficiaries. Keeping government benefits intact and preserving limited resources for such individuals are both paramount in clients' minds. Non-professional trustees will need competent counsel as to distribution planning for the disabled beneficiary as well as other trust administration issues.

In the case of a disabled child, a life care plan may be prepared to better assess the needs of that child. This is particularly so in the case if the child receives a personal injury settlement. A life care plan can be of utmost importance to the trustee who is working to invest assets to ensure that they will outlast the child and to maintain a quality of life for that child that adequately meets his or her medical and personal needs.

Lastly, trust investments are an important part of special needs trust planning. If parents have a disabled child but have limited financial resources, they may want to consider funding such a trust with life insurance to ensure that there are sufficient resources to adequately meet the child's needs. With regard to other trust assets, trustees have to be sufficiently prepared to invest assets to meet state law requirements that pertain to trust investments as well as the needs of the disabled beneficiary.