Special Needs Trust: What You Need to Know

by | Jul 17, 2024 | Estate Planning

Special Needs Trust: What You Need to Know

Planning for the future care and financial stability of a loved one with special needs can be a complex and sensitive task. One effective way to ensure their well-being is by setting up a Special Needs Trust (SNT). This legal arrangement can help provide for their needs without jeopardizing their eligibility for government benefits. Here’s what you need to know about creating a Special Needs Trust.

What is a Special Needs Trust?

A Special Needs Trust (sometimes abbreviated as “SNT”) is a legal document/arrangement that allows a person with a disability to receive financial support without affecting their eligibility for government benefits such as Medicaid and Supplemental Security Income (SSI). The trust holds assets that are used to enhance the beneficiary’s quality of life while preserving their access to essential public assistance programs.

Types of Needs Trusts

There are three primary types of Special Needs Trusts:

  1. First-Party Special Needs Trust

This type of trust is funded with the assets of the person with special needs, often from an inheritance, personal injury settlement, or savings. It must be established before the beneficiary turns 65 and any remaining funds in the trust upon the beneficiary’s death may be required to be used to repay Medicaid for services provided during their lifetime.

  1. Third-Party Special Needs Trust

Funded by someone other than the beneficiary, such as parents, grandparents, or other relatives, this type of trust does not require Medicaid reimbursement upon the beneficiary’s death. It can be set up as part of an estate plan and is often funded through life insurance policies, gifts, or bequests.

  1. Pooled Special Needs Trust

Managed by a non-profit organization, this trust pools resources from multiple beneficiaries for investment purposes while maintaining separate accounts for each beneficiary. This type of trust can be funded by the beneficiary or third parties and can be beneficial for individuals who may not have significant assets to establish their own trust.

Key Benefits of a Special Needs Trust
  1. Preserving Eligibility for Government Benefits

By placing assets in a Special Needs Trust, the beneficiary can continue to qualify for need-based government benefits, such as Medicaid and SSI, which have strict asset and income limits.

  1. Enhancing Quality of Life

Funds in a Special Needs Trust can be used for various expenses that improve the beneficiary’s quality of life, such as education, recreation, medical and dental care not covered by insurance, transportation, and personal care items.

  1. Financial Security

A Special Needs Trust provides a structured way to manage and protect assets intended for the care of a person with special needs, ensuring that these resources are available throughout their lifetime.

Steps to Create a Special Needs Trust
  1. Consult with an Estate Planning Attorney

It is crucial to work with an attorney who specializes in estate planning and working with Special Needs Trusts to ensure that the trust is set up correctly and in compliance with state and federal laws.

  1. Choose a Trustee

Select a trustworthy and capable individual or entity to manage the trust. The trustee will be responsible for making distributions from the trust in a manner that benefits the beneficiary without jeopardizing their government benefits. You can choose an individual you know or a professional trustee. Professional trustees can be attorneys or accountants, the trust department at your local bank, or a private trust company.

  1. Draft the Trust Document

The attorney will draft the trust document, outlining the terms and conditions of the trust, including the trustee’s powers, the beneficiary’s rights, and how the funds can be used. The language in a Special Needs Trust must be very specific to ensure it does not interfere with benefit eligibility.

  1. Fund the Trust

Transfer assets into the trust. This can include cash, investments, real estate, and other valuable resources.

  1. Notify Relevant Parties

Inform relevant government agencies and other interested parties about the creation of the trust to ensure continued eligibility for benefits.

Ongoing Management

Once the trust is established, it requires ongoing management. The trustee must keep accurate records, file taxes, and ensure that distributions are made in a way that benefits the beneficiary and complies with the trust’s terms.

Creating a Special Needs Trust is a vital step in securing the future of a loved one with special needs. It offers a way to provide financial support while preserving eligibility for essential government benefits. By understanding the different types of trusts, the benefits they offer, and the steps involved in creating one, you can make informed decisions that will enhance the quality of life for your loved one.

If you are considering setting up a Special Needs Trust, seek advice from a qualified estate planning attorney to guide you through the process and ensure that your loved one’s future is well-protected.