Now that we’ve established the basics of special needs trusts, let’s talk about creating one. Creating a special needs trust (SNT), to ensure a disabled or mentally ill person’s assets are protected, can become complicated. Law states the trust cannot be retracted once it is set in place, so it is important to discuss your SNT with an estate planning attorney who can help write it.  Either the recipient or a third party can establish a trust. This person is known as the settlor, they are responsible for signing the trust as well as providing the funds for it.  The settlor is also responsible for deciding how the trust will be dispersed. There are several options, usually in a special needs trust; it is at the beneficiary’s discretion, as long as it doesn’t interfere with government qualifications for Medicaid.

When to make a special needs trust and for whom also poses several difficulties.  One problem arises if a family does not feel it will need the assistance of Medicare, and therefore will just set up a regular trust fund for the beneficiary. However, assets placed into a special needs trust are “non-countable,” meaning if any litigation or creditors should sue the disabled person, the special needs trust could not be drained of its value.  Another problem is bestowing the money to family members on behalf of the disabled person. The major problem with this is that the money is not legally protected for the benefit of the intended person. For example the money may be lost in divorce, bankruptcy, taxes, or inheritance if the recipient passes away before the disabled person does.

The easiest way to start is with a letter of intent. The letter will outline what the trustee is leaving to the beneficiary at the time of the trustee’s death. It should outline financial details as well as personal information such as medical history and social habits. Also it should list anything the trust should not be used for. Early planning of a special needs trust will ensure it is done right.