About Special Needs Trusts

Special Needs Trusts

A parent or loved one of a special needs child has two goals.  To provide the best possible care and also provide lifetime financial support.  One of the best ways to accomplish both of these goals to create a Special Needs Trust.  A special needs trust makes it possible for a parent or loved one to appoint a trustee to hold property for the benefit of a disabled or mentally ill child.  The trust often provides income and stability since it will continue after the parent or loved one passes away.  A trustee manages the trust for the benefit of the disabled person.  A trustee could be a family member, a family friend, a bank or financial institution, or any combination of these.  The trustee can be delegated a task or duty, most like to care for the disabled child’s medical and education expenses, and he can only spend or manage the assets for the benefit of that person.

There are a few ways to fund a special needs trust.  The trust can be funded through a will, or any type of donation or gift made directly to the trust.  Or the trust can be funded with life insurance policies.  In this case, upon the death of one or both parents, the insurance policy pay-out would directly fund the trust for the benefit of the disabled person.

One reason a Special Needs Trust may be better than an outright gift or bequeath in a will is to protect the assets now.  Once assets are placed in a trust for the benefit of the disabled person, the money cannot be subject to creditor liens, divorce judgment, or bankruptcy discharges.  Further, relatives cannot be forced to use to money.  And most importantly, once the assets are put into trust, they no longer are a part of your estate.  This means that, once parents pass away, assets in trust are not subject to estate taxes.

Government Benefits and the Special Needs Trust

In order to qualify for Social Security’s Supplemental Security Income Benefits (“SSI”), a disabled adult cannot hold more than $2,000 in assets, excluding a car and a home.  SSI benefits provide a disabled person with monthly payments that must be spent on food, clothing and shelter expenses.  SSI eligibility also makes a disabled person eligible for Medicaid, which pays for medical expenses, nursing home case and mental health services.  These benefits significantly increase a disabled person’s ability to care for him or herself.  This means that directly giving a disabled person property or money may affect his or her eligibility for these benefits.  However, a Special Needs Trust is an indirect way of providing assets to a disabled person without affecting their eligibility for government benefits.

Creating a Special Needs Trust

To be an effective trust, a document must be drafted that states certain requirements.  First, the document should be titled as a special needs trust for the benefit of the disabled person.  The trust document should also provide the trustee with discretion to spend the trust assets to benefit the disabled person, and not allow the disabled person to demand that trust funds be distributed.  It is important that the trust assets do not belong to the beneficiary, but are simply used and spent for his or her benefit.  This prevents the trust assets from being counted among the disabled person’s assets, and making him or her ineligible for government benefits.  The trust document should also specify the assets funding the trust so there is no confusion.

Finally, a way to ensure no ambiguities in creating a Special Needs Trust is to write a letter of intent to give to the disabled child and the trustee.  The document should provide information about the disabled child, nature of disability, describe the trust assets and how they are to be spent to benefit the beneficiary, and any limits on the trust.  With some estate planning and protections, you can ensure that your loved ones will have a happy life, and be cared for in the future.