Special Needs Planning

What is the purpose of a Special Needs Trust?

When should a Special Needs Trust be established?

Who can establish a Special Needs Trust?

Our family is wealthy. Do we still need to create a Special Needs Trust?

Q: What is the purpose of a Special Needs Trust?

While you certainly can provide care for a child or loved one with special needs (such as mental or physical disabilities), such a bequest may prevent them from qualifying for essential government 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.  Fortunately, the government has established rules allowing assets to be held in trust, called a “Special Needs” or “Supplemental Needs” Trust for a recipient of SSI and Medicaid, as long as certain requirements are met. The Special Needs Trust can fund those needs that go beyond food, shelter, and clothing and the medical and long term supports and services of Medicaid, but the trust must be designed specifically to supplement not replace public benefits. Among other things, funds from the trust cannot be distributed directly to the disabled beneficiary. Instead, it must be disbursed to those who provide goods and services for use and enjoyment by the disabled beneficiary. A Special Needs Trust established with assets that do not belong to the benefits recipient are known as "Third Party" trusts. 

A Special Needs Trust also may be established with the child or loved one's own funds, for example, gifts or proceeds from a lawsuit. This type of Special Needs Trust is known as a "Self-Settled" trust, and it must include a provision for payback of government benefits upon the death of the recipient.

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Q: When should a Special Needs Trust be established?

A third party Special Needs Trust may be created at any time. It often makes sense, however, for the parents of a disabled child to establish such a trust at an early age, to be ready to receive gifts or inheritances not only from the parents but also from other family members. If such assets go first to the beneficiary, then they must go into a self-settled Special Needs Trust, with government payback provisions. A self-settled Special Needs Trust generally should be established no later than the beneficiary’s 65th birthday.

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Q: Who can establish a Special Needs Trust?

While Special Needs Trusts are typically established by parents for their disabled children, any person can establish a third party Special Needs Trust for the benefit of a disabled beneficiary. It is important to seek the assistance of competent counsel when creating a Special Needs Trust to protect the trust from “invasion” by the government agencies who provide benefits.

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Q: Our family is wealthy. Do we still need to create a Special Needs Trust?

You still should consider whether a Special Needs Trust is necessary or appropriate for your loved one. For example, the cost of care for a young person with significant disabilities may exhaust even a significant inheritance over his or her lifetime. Assets also may need to be used to pay the high cost of the beneficiary's basic needs rather than to enhance their quality of life. Because the funds in a Special Needs Trust are not countable as available assets for purposes of determining government benefit eligibility, more of your money might be used for those supplemental expenditures that will allow your disabled beneficiary to enjoy a higher standard of living. A Special Needs Trust also may help protect your disabled beneficiary's inheritance from potential creditors, for example, if your disabled beneficiary is ever sued in a personal injury action.

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