A lot of confusion exists as to whether a special needs trust must pay monies remaining in the trust at its termination to the State to reimburse the State for Medicaid paid on behalf of the beneficiary during his life. Any such payback would only be at the trust’s termination, which is typically at the death of the beneficiary. While some special needs trusts do have this Medicaid payback, others do not. In fact, there are different types of special needs trusts which are used in different situations, and it is important to determine which type of trust is appropriate for your needs.

The major difference between the types of special needs trusts, and the reason why some trusts have a payback and others do not, depends upon where the money is coming from that goes into the trust. There are two main types. A first-party, payback special needs trust is funded only with monies of the beneficiary’s own. A third-party, non-payback, special needs trust can be funded with monies of anyone in the world except the beneficiary. While both trusts protect eligibility for public benefits, they are used in very different situations.