Special Needs Trust

Special needs trusts, also known as supplemental trusts, are incredibly important for when it comes to planning the future for an individual with disabilities. Because of this, we wanted to provide you with the compelling information you need to know as to why you should consider establishing a special needs trust.

What is a Special Needs Trust?

A special needs trust is a wonderful tool that is set-up for an individual with special needs. It ensures that that person will supplement any benefits the person may receive from government programs. A special needs trust that is properly drafted will allow the beneficiary to receive government benefits while still receiving funds from the trust.

How does a trust work?

A trust is a fancy term that describes a relationship between three parties – a donor who supplies the funds; a trustee who administers the funds according to any rules and regulations the donor places in the trust; and a beneficiary (or beneficiaries) who receive the benefit of the funds.

Trusts have been used throughout the world of estate planning for a long time, as they ensure a donor’s property is administered as he sees fit.

What are special needs trusts, and what types of special needs trusts are there?

A special needs trust is a document that is specifically tailored to help manage assets for the person with special needs while not compromising their access to important government benefits. It is important to understand that distributions of a special needs trust cannot provide basic support. However, these funds can pay for supplemental items such as education, entertainment, vacation, hobbies, and medical care beyond what is considered a necessity of life. Essentially, a special needs trust helps preserve public benefits while enhancing your child’s lifestyle.

The three main types of trusts are:

The first-party special needs trust

The first-party special needs trust holds assets that belong to the person with special needs such as inheritance or accident settlement/a monetary awarded by the court.

In order to qualify for this type of trust, an individual must meet the definition of disabled per 42 U.S.C. Section 1382c(a)(3)(A). In addition to that, the individual with the disability must be under the age of 65 at the time the first-party special needs trust is created.

The third-party special needs trust

The third-party special needs trust holds funds that belong to other people who want to help a person with special needs. Typically these funds belong to other individuals who are interested in helping a person with special needs.

The advantage of this type of trust revolves around there being no requirements for Medicare pay-back. This means that when the beneficiary dies, the trustee is not required to pay back the benefits they have received from Medicare. If you are choosing to set up this type of trust, it is important to keep in mind that you must designate who will receive the remaining assets in the event of the primary beneficiaries death.

The pooled special needs trust

A pooled trust holds funds from many different beneficiaries with special needs, and are established and administered by a non-profit association. The concept of a pooled special needs trust is that the assets of the pooled trust are set to benefit multiple beneficiaries. However, these funds are pooled together for management and investment reasons.

If you choose this type of trust, know that the remainder beneficiary cannot be designated in the event the primary beneficiary passes on.

The government requires several different types of special needs trusts due to the regulations regarding Supplemental Security Income (SSI).

Who can establish a special needs trust?

The answer to this question is tricky, as the answer lies in determining whose assets will be funding the trust. Typically, a special needs trust is established by the beneficiaries parent(s), grandparent(s), legal guardian(s), or even a court of law.

The good news is that anyone can establish a special needs trust, and if the trust is drafted well, gifts can potentially reduce the size of the donor’s taxable estate.

How do special needs trusts benefit the individual they are for?

We have previously spoken in this article about the public benefits of a well-constructed trust, but there are so many more worthwhile benefits of a special needs trust.

Envisioning a life

As a parent of a child with special needs, it is often difficult to envision their future, and a special needs trust helps you to do just that. You must plan that your child may attend a trade school or college. You must envision them living in an apartment or a small group home that has support services readily available to them.

Flexibility

Overtime a beneficiary of a special needs trust may have needs that evolve further than they were when the document was created. Do not let that factor deter you from creating a trust for them. This document should be written to be amended ad a trustee’s circumstance changes, but the reality is that you have to start somewhere. An amendment is quick and painless, as long as there is a proper foundation to build on.

Ensure assets will be used as intended.

As with any trust document, distribution of assets directed by trust documents will be followed in accordance with the guidelines they layout. In the event that you do not choose to create a special needs trust, you cannot ensure that the funds will be distributed accordingly.

Maximize the benefits of a personal injury settlement.

In the event your child wins a settlement that includes a payout to be made to them, a special needs trust can offer several benefits. For example, your child will still be able to qualify for public benefits, while using settlement funds for nonessential expenses. What we mean by that is that your child may enjoy financial security for nonessential expenses for the rest of their life.

Special needs trusts are an important planning tool for an individual with special needs. It is important to understand that every person with special needs is different, which means every special needs trust is different as well. If you need help determining what special needs trust is right for your family, we can help. Give us a call to schedule a special needs planning consultation.