What Is A Special Needs Trust And How Does It Work?

Jun 16, 2023 | Estate Planning

If you are the caretaker for a loved one with special needs and have done research into estate planning, you might have learned by now that there is a type of trust that can be established specifically for them. Special needs trusts can prove very beneficial in ensuring that the people who rely on you will be taken care of after you’re gone. In this blog post, we’ll be discussing what a special needs trust is and how it works, so that you can determine if it is something that might benefit you and your family!

What Is A Special Needs Trust And Why Would I Need One?

A special needs trust – sometimes referred to as a supplemental needs trust (SNT) – is a type of trust for individuals with physical disabilities, mental disabilities, or other functional needs. Since many of these individuals receive government benefits such as Medicare, Medicaid, or SSI, their monthly income must be under the asset limit in order for them to remain eligible. The SNT allows the individual receiving government benefits to save money or inherit a significant amount of money while still technically staying under the asset limit. 

Anyone who is the parent or guardian of someone who may not be able to support themselves financially because of a disability or medical condition should consider establishing an SNT. While necessary, government benefits do not ensure that all expenses will be paid. If you want to make sure they will be taken care of after you’re gone without jeopardizing their benefits, an SNT is crucial. 

How Does An SNT Work?

The money in a special needs trust is used to improve the quality of life of the beneficiary. It should not be used to pay for the bulk of basic expenses such as food, housing, transportation, or medical care, as those are to be paid out of the funds they are receiving from government programs. If the government benefits do not cover the full amount, the trust may be used to cover the gaps. It should also not be used to buy extravagant gifts for other people or for charitable donations. Some common expenses that SNTs are used to pay for are:

  • Electronics such as TVs and computers
  • Housekeeping or cooking assistance
  • Service animals and other pets
  • Car insurance
  • Trips
  • Entertainment such as movies or books
  • Hobbies
  • And more

Similar to other types of trusts, once the grantor considers the needs of the beneficiary and sets up the trust, they will assign a trustee to monitor it. This trustee can be a family member, friend, professional, or non-profit group. The role of the trustee is to keep track of the funds in the trust, approve or deny requests from the beneficiary, and follow the rules of the trust at all times. Working with an estate planning attorney can simplify the process and ease the stress of interpreting all of the legalese that comes with establishing a trust. 

Types Of Special Needs Trusts

There are 3 types of special needs trusts that you could establish. Your estate planning attorney can help you determine which type would be best for you based on your specific goals and the needs of the beneficiary you are looking to support. 

  1. 3rd Party Special Needs Trust: this type of SNT is similar to the traditional trust. The assets within the trust are funded by an individual who is not the beneficiary and it can be established as revocable or irrevocable, stand-alone or testamentary trust.
  1. 1st Party Special Needs Trust: this type of SNT is funded by the beneficiary in order to allow them to save money or build assets without jeopardizing their access to government assistance; however, it does not always have to be created by the beneficiary themselves. 1st party SNTs can be established by a family member using the beneficiary’s assets. It’s important to note, though, the Medicaid repayment provision that is required of a 1st party SNT. This stipulates that the assets remaining in the trust after the beneficiary passes away will be used to repay Medicaid. If there are any assets leftover after repayment, they will be distributed to contingent beneficiaries. 
  1. Pooled Special Needs Trust: these SNTs are also known as community trusts, and entail funds being gathered from multiple families, donors, and community members. They are normally administered by nonprofit organizations and name individual members of a family as separate beneficiaries with their own account.

Can An Estate Planning Attorney Help Me Set Up A Special Needs Trust?

An estate planning attorney would be extremely beneficial to anyone looking to establish an SNT. The process is very similar to setting up any other type of trust fund, but even those are highly complex. In order to have peace of mind and assurance that your loved one will be taken care of, an estate planning lawyer or wills and trusts lawyer will provide a variety of services and simplify the process. You’ll need to be sure to be as accurate and honest as possible when it comes to your loved one’s current income, current and potential expenses, and the rate at which they will need to withdraw funds from the trust. Once you’ve shared this with your attorney, they will be able to draw up the trust according to your provisions, help you pick a trustee, and answer any questions or concerns that arise along the way.  

Daly Law Offices Can Make Sure Your Loved One Is Cared For, Even After You’re Gone

If you are the caregiver of a loved one with special needs, you might have identified with any number of scenarios above. You may even have begun to worry about what their future looks like without you. Our firm is here to make sure you don’t spend any more time worrying! Daly Law Offices can work with you to establish the trust that best fits the needs of you and your family. Call today and schedule your free consultation to learn more about our services. 

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