Special Needs Trusts
If you have a loved one with special needs, you may worry about how you’ll be able to afford their medical or long-term care. Maybe you worry about who will look after them when you cannot. Setting up a special needs trust can help your family get government benefits for your loved one while providing them with money that can improve their quality of life.
Contact The Law Offices of Brian L. Fox, APLC, for an initial case evaluation to discuss protecting your loved one’s interests and future. As a small firm, we can provide your family with personalized attention, compassion, and tailored legal solutions.
Understanding Special Needs Trusts
In a trust, a person or financial institution called a trustee holds and manages money, property, or other assets for the beneficiary or beneficiaries of the trust. A trust document written by the person who established the trust governs how the trustee must manage the trust, the scope of the trustee’s discretion, the beneficiary’s right to distributions, and how/when the trust will terminate. Trusts come in various forms and serve different purposes. One common type of trust is the special needs trust.
Individuals or families may set up a special needs trust for a person who requires long-term or lifelong care due to a physical or developmental disability. Long-term care can quickly become expensive, and many families turn to means-tested government benefits like Medicaid and Supplemental Security Income to help cover the costs of care for their loved one with special needs. Putting the loved one’s assets in a special needs trust means they no longer legally own the assets, which could allow them to qualify for government benefit programs.
A special needs trust can protect the assets of an individual who unexpectedly becomes severely disabled and requires long-term care. If a disabled person receives money from a personal injury settlement/judgment or an inheritance that would disqualify them from getting government benefits, a special needs trust can prevent them from losing access to those benefits. The trustee of a special needs trust can use the trust’s assets and income to supplement the beneficiary’s care and standard of living.
Understanding the Two Forms of Special Needs Trusts
Special needs trusts come in two forms.
A first-party SNT, also called a “self-settled” or “(d)(4)(A)” trust, includes assets or income belonging to the trust beneficiary, such as a personal injury award or property owned by the beneficiary before the trust’s creation. A first-party SNT must get funded before the beneficiary turns 65 and reimburse Medicaid upon the beneficiary’s death or termination of the trust.
A third-party SNT, sometimes called a supplemental needs trust, must receive all its funding from parties other than the beneficiary, such as gifts or inheritances from family members. Third-party SNTs do not have to reimburse Medicaid upon the beneficiary’s death or the trust’s termination.
Key Components of Special Needs Trusts
Setting up a special needs trust requires three key components. First, the trust’s creator, called the grantor, must designate a trustee. A person, such as a family member of a person with special needs, can serve as trustee. However, if family members cannot or do not want to manage financial affairs, the grantor can appoint a bank, trust company, attorney/law firm, or other professional to serve as trustee.
A trust also requires the grantor to fund the trust with money or assets (such as real property, annuities, life insurance policies, or investments). The trust document must describe how the trustee should manage and distribute the trust principal and income. A trust document may limit the types of investments the trustee can make with the trust funds or how much money the trustee can distribute to the beneficiary (including which kinds of expenses trust money will pay for). Alternatively, the trust document can give the trustee broad discretion over asset management and distributions.
The grantor can set the trust to terminate upon the beneficiary’s death or set an earlier termination date. For a first-party SNT, the trust document must direct the trustee to reimburse Medicaid with any remaining trust assets upon termination. If the trust still has assets after reimbursing Medicaid, those assets can pass to the beneficiary’s estate. In a third-party SNT, the grantor has complete control over the distribution of assets upon the trust’s termination.
Managing a Special Needs Trust
The trustee’s role in a special needs trust includes managing and distributing trust funds to support the beneficiary without jeopardizing their eligibility for government benefits. The trustee must appropriately invest trust assets, keep financial records, and file and pay taxes as necessary. Trustees must also keep up with legal developments, including rules governing special needs trusts and updated government benefit eligibility requirements.
Frequently Asked Questions About Special Needs Trusts
Common questions that families may have about special needs trusts include:
Will a trust jeopardize my loved one’s eligibility for Medicaid or other government benefits?
An irrevocable trust established and funded before the beneficiary’s 65th birthday will allow the beneficiary to qualify for means-tested government benefits if trust distributions only cover financial needs not covered by government benefits, such as:
- In-home caretakers not paid by Medicaid benefits
- Out-of-pocket medical expenses
- Household items
- Clothing
- Utilities like cell phone or internet service
- Transportation costs
Using trust funds for food or housing can affect a beneficiary’s Supplemental Security Income benefits.
What happens if the trustee of a special needs trust can no longer serve?
If an individual becomes unable or unwilling to serve as trustee or an institutional trustee goes out of business, the trustee, beneficiary, or a family member can petition the court to replace the trustee.
Contact an Estate Planning Lawyer Today to Discuss Setting Up a Special Needs Trust for a Loved One
When your family has a loved one with special needs, careful estate planning can help protect them. A special needs trust can ensure they have the resources they need for care, even after you and your loved ones can no longer care for them. Contact The Law Offices of Brian L. Fox, APLC, today. We’ll provide a confidential consultation with a caring, knowledgeable estate planning attorney to discuss establishing a special needs trust for your loved one.
