Special Needs Trust Basics

If you have a disabled relative or close friend, there is some important information you should have regarding special needs trusts (SNT).

If you have a disabled relative or close friend, there is some important information you should have regarding special needs trusts (SNT).  A special needs trust (sometimes called supplemental needs trusts) is a legal document created for a person who, because of physical or mental disability, or chronic or acquired illness, at under age 65, is receiving federal and state government benefits for medical care and daily living needs, such as Supplemental Security Income (SSI), Medicaid, vocational rehabilitation, subsidized housing and others.  The purpose of this type of trust is to provide a source of funds, such as those that are inherited, without disqualifying the beneficiary from receiving these government benefits.  The trust funds are used for supplemental care, over and above what the government benefits provide.

SNT - Improving Quality of Life

Collectively, these assets are used by the trustee(s) (who cannot be the beneficiary) to fund expenses that improve the quality of life for the beneficiary and that are not already covered by existing government benefits.  Some examples of such expenses include:

-Additional caregiving or personal therapy, including visits to or expenses of a companion

-Reasonable expenses for experiences such as travel and visits to relatives or entertainment

-Costs for special transportation

-Personal items

The trust would pay for such expenses directly rather than the beneficiary receiving cash to pay for these expenses him or herself, which might jeopardize benefits.

What is the purpose of a SNT?

While you can certainly bequest money and assets to those with special needs, such a bequest may prevent them from qualifying for essential benefits under the Supplemental Security Income (SSI) and Medicaid programs.  However, public monetary benefits provide only for the bare necessities such as food, housing and clothing.  As you can imagine, these limited benefits will not provide those loved ones with the resources that would allow them to enjoy a richer quality of life.  But if parents leave any assets to their child who is receiving public benefits, they run the risk of disqualifying the child from receiving them.  Fortunately, the government has established rules allowing assets to be held in trust, called a “Special Needs” or “Supplemental Needs” Trust for the benefit of a recipient of SSI and Medicaid, as long as certain requirements are met.

When should a SNT be established?

Generally, a SNT should be established no later than the beneficiary’s 65th birthday. If you have a disabled or chronically ill beneficiary, you may want to consider establishing the SNT at an early age.  One benefit of having the Trust in place is that if the disabled beneficiary becomes the recipient of funds such as gifts, bequests or a settlement from a lawsuit they can immediately be transferred to the Special Needs Trust without affecting that individual’s eligibility for government benefits.

Who can establish a SNT?

While Special Needs Trusts are typically established by parents for their disabled children, any third party can establish a SNT for the benefit of a disabled beneficiary.  It is important to seek the assistance of competent counsel when creating a Special Needs Trust.  Indeed, a poorly drafted Trust can easily be subject to “invasion” by the government agencies who provide benefits.  I have the experience to establish effective Special Needs Trusts for anyone who wishes to provide for a disabled beneficiary.

How do you fund a SNT?

A special needs trust is established for the benefit of a person with special needs to help him or her financially after your death.  Usually established by parents for their disabled children or by children for their elderly parents, it is a vehicle by which to leave money or property behind without giving direct control over the assets.  In this manner, the value of the assets in trust can be excluded from being considered in federal or state means-tested benefits of the beneficiary, thus allowing them to still receive such items as Supplemental Security Income (SSI) or Medicaid.

Our family is well off. Do we still need to create a SNT?

Yes, you should still establish a Special Needs Trust to protect your disabled beneficiaries from potential creditors.  For example, if your disabled beneficiaries are ever sued in a personal injury action, the assets in the trust would not be available to the plaintiffs.  Furthermore, because the funds in the Special Needs Trust are not countable as available assets for purposes of determining government benefit eligibility, more of your money can be used for those supplemental expenditures that will allow your disabled beneficiary to enjoy a higher quality of life.  Otherwise, much of your assets will be used to pay for private care benefits that are extremely expensive and can drain even significant sums of money over a period of years.

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