by Samuel V. Butcher, Esq
As an advocate and guardian for your family member with a developmental or intellectual disability, it is important to understand and determine if you should pursue a Special Needs Trust.
What is a Special Needs Trust?
A Special Needs Trust (SNT) is a trust established as a source for funds received for the benefit of an individual who receives government benefits based on need. SNTs, also referred to a Supplemental Needs Trusts, are intended to supplement needs-based government benefits, such as Supplemental Security Income (SSI) and Medicaid, without jeopardizing the continued receipt of those benefits.
Who needs a Special Needs Trust?
If your child, sibling or loved one receives Supplemental Security Income or Medicaid benefits, they should have a Special Needs Trust in place.
How is it different from other legal documents?
A Special Needs Trust is irrevocable. Strict legal requirements must be followed when establishing and making distributions from the SNT so the beneficiary does not compromise his or her public benefits. A wide range of acceptable expenditures can be made out of the SNT for the sole benefit of the beneficiary. However, legal guidelines must be followed to maintain the integrity of the trust and continued receipt of public assistance benefits.
What happens if I don’t have a Special Needs Trust in place?
If your child, sibling or loved one receives a distribution of assets, such as a monetary gift, an inheritance or settlement, their SSI and Medicaid benefits could be jeopardized.
With an SNT in place, needed benefits are protected from being taken away, should your family member receive unanticipated gifts or other distribution of assets.
What can funds from Special Needs Trust be used for?
Having an SNT allows a beneficiary to use gifted money to enhance quality of life and pay for a wide range of additional assistance and “extras” that government benefits do not cover.
For example, a Special Needs Trust could afford the ability to purchase a home, specialized wheelchairs, handicap-accessible vans or mechanical beds. It can pay for personal attendant care while on vacation, as well as other recreational and cultural experiences.
What age is ideal for establishing a Special Needs Trust?
There is no particular age considered ideal for establishing a Special Needs Trust. When to establish the trust could depend on whether the trust will be a First-Party SNT or a Third-Party SNT. A First-Party SNT will need to be established when the person with a disability receives money, such as an inheritance, settlement or judgment, which without an SNT, would result in the loss of needs-based public assistance benefits.
Are there different kinds of Special Needs Trusts?
Yes. There are four types of Special Needs Trusts. Most commonly used are First Party and Third Party SNT’s
A First-Party Special Needs Trust:
• Can be established by the individual with the disability (or by the court or other surrogate acting on the individual’s behalf) using the individual’s own funds.
• Must be established for the benefit of one individual who has a disability and under the age of 65 at the time the trust is funded.
• Can only be established by the parent, grandparent or guardian of the person with the disability or by the court.
• Must be created while the grantor is living and must be irrevocable.
• Must give sole and absolute discretion over the use of the trust income and property to the trustee
• Requires a payback provision pursuant to the Medicaid plan of the beneficiary’s state.
A Third Party Special Needs Trust:
• Is established by one person using his or her own funds and for the benefit of another person with a disability.
• Is funded exclusively with assets not belonging to the beneficiary with the disability.
• Requires careful drafting to ensure the beneficiary doesn’t use the income for food or shelter, which would directly impact government benefits.
• Can be created without a payback provision, which allows funds to be distributed upon the beneficiary’s death to designated family members.
Do I have to work with a lawyer to create a Special Needs Trust? Can I do it by myself or with my financial planner?
A lawyer familiar with the special legal requirements for SNTS should be involved in the planning and creation of a SNT. There are many points that should be considered by the family of a loved one with a disability before a decision is made to create a SNT. Once the SNT is created, family members, and particularly the Trustee of the SNT (whether or not a family member), will need legal guidance in managing the SNT and making distributions from the SNT.
Unless a financial planner is an attorney, he or she would be practicing law without a license and in violation of the law by assisting a client in drafting a SNT. The financial planner can be a valued team member in making recommendations for investment of the SNT funds, funding investments to the SNT and facilitating distributions.
What is involved in creating a Special Needs Trust?
The legal process begins with educating the client. There are certain laws that anyone creating a SNT needs to know. Once the client has a working knowledge of what a Special Needs Trust is and how it operates, a design meeting is scheduled so the client can be further counseled to make choices, such as who will be the trustee of the SNT, so that the trust document can be drafted.
The attorney will edit and finalize the draft and prepare a final document to be executed at a signing meeting. A First-Party SNT requires court approval. Funding will be discussed at the signing meeting and subsequent meetings will be conducted as necessary to confirm that the SNT has been properly funded. Thereafter, additional legal guidance will be offered to ensure that the client remains in full compliance with the law in maintaining and making distributions from the SNT.
Is it expensive to work with a lawyer to create a Special Needs Trust?
The creation of a SNT requires expertise in a specialized area of the law. The cost of establishing a SNT is still modest compared to the value of maintaining assets in trust that can enhance the life of a child with a disability while maintaining the continued receipt of life-sustaining public assistance benefits.