5 Key Considerations Regarding Establishing a Special Needs Trust

A special needs trust (SNT), also known as a supplemental trust, is an irrevocable trust designed to hold funds for individuals who are either minors or physically and/or mentally disabled. The SNT is managed by a trustee who distributes the funds to provide supplemental financial support to the individual with special needs named as the beneficiary in the trust. The funds are dispersed according to strict federal guidelines to prevent jeopardizing the individual’s eligibility to participate in government programs such as Medicaid or Social Security Income (SSI).

Before we go into the considerations of establishing a special needs trust, it’s important to point out a key distinction between a special needs trust and a supplemental needs trust. Although the goal of both trusts is to provide the beneficiary of the trust with funds to pay for certain services that may not be covered through a government-sponsored program, the key difference between the two trusts comes in how they are funded. A special needs trust is funded by the disabled individual while a supplemental needs trust is funded through a third party such as a friend or a family member. Keep an eye out for a future blog post as the differences between these two trusts is something that we will cover soon! Below are five key considerations to be aware of when establishing a special needs trust.

1.     Special Needs Trust Fund Distribution

The assets held in an SNT are not considered part of the individual’s assets. They do not count toward the income and asset limits set by these social programs that help determine eligibility, provided the funds are distributed according to the guidelines. These funds must be used for the percentage of the individual’s expenses that are not covered by the public assistance programs they participate in. For example, Medicaid and Social Security Income (SSI) benefits will pay for a significant percentage of the recipient’s healthcare, rent or mortgage payment, food, and utilities. The funds from the special needs trust cannot replace that assistance. However, these funds can provide supplemental support that pays for other needs and expenses, such as:

• Clothing or dry cleaning
• Personal grooming
• Electronic equipment, including a television or computer
• Musical instruments
• Housekeeper or cooking assistance
• Caretaker
• Transportation
• Supplemental medical insurance or out-of-pocket medical expenses
•  Specified medical services, therapies, or equipment
• Education

2.     Special Needs Trust Funds are Protected

A parent establishing a special needs trust for a child with special needs will be assured that the proceeds from the trust will go toward necessary, stipulated expenses. In addition, because the SNT is irrevocable, the fund’s assets cannot be seized by creditors or someone who files a lawsuit. Lastly, because the disabled individual does not have direct access to the funds, any concern that outside parties could financially influence or take advantage of them is eliminated.

3.     Assets in the Special Needs Trust

Assets placed in the SNT once belonging to the disabled individual may be subject to Medicaid’s repayment rules. However, assets placed in the trust by parents, or another third party are not. In addition, funds used to create an SNT may be tax-deductible.

4.     The Special Needs Trust Cost and Trustee Designation

Setup costs and annual fees are associated with this type of trust. In addition, a trustee must be designated to manage the trust. This person’s job will be to provide money only when it will be used for services and necessities outlined in the trust. The trustee must know the needs of the beneficiary and the laws relating to this type of trust. The trustee must also understand how to invest, budget, and keep accurate accounting of the funds. For these reasons, the trustee chosen is often a professional. This may also increase the annual fees associated with the SNT; however, it is integral that the funds are appropriately managed on behalf of the disabled individual. It is also possible to designate a co-trustee who is a family member who knows the disabled individual well to ensure that their needs are met consistently.

5.     Lack of Independence

The disabled beneficiary of the SNT must request funds from the trustee as needed. The trustee has total control over the trust, and the disabled person has very little. This may be necessary and in the best interest of the disabled individual, but it may also lead to feelings of resentment and frustration over their lack of independence.

A special needs trust is a valuable tool that can effectively enhance a disabled individual’s quality of life and meet their health and welfare needs. It is critical to enlist a skilled and experienced estate attorney to ensure that the special needs trust you establish is valid, legal, and will meet the changing needs of the beneficiary as they age. BMC Estate Planning knows how complex some of these decisions can be and will provide you with the correct information you need to make them. BMC Estate Planning specializes in special needs trusts and wants to be your trusted partner in planning for your family’s future.

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