It can be overwhelming to plan for the future of a loved one with special needs. Families want to make sure their loved ones will be okay financially after they’re gone.
A special needs trust (SNT) is a financial tool that helps provide a quality of life for people with disabilities while preserving their rights and access to essential services. With an effective plan, a special needs trust can provide lifetime security, enabling the person to live comfortably, free from the fear of financial difficulties.
What Is a Special Needs Trust?
A special needs trust is a type of legal toolbox that stores and administers funds for a person with disabilities. These trusts enable them to have financial assets without impacting their ability to access assistance programs.
However, if a person with special needs directly receives money, they may lose access to these benefits. A special needs trust provides a means for them to access funds to help make their life better, without jeopardizing their eligibility to receive assistance. This is often established by parents, grandparents, or other family members looking to ensure long-term financial security.
The money in the trust can be spent on things such as medical care, education, entertainment, personal items, and even travel. If the person is getting assistance, the money can’t be used for necessities like food and housing. A Special Needs Trust Attorney gives families by confirming that the trust is properly structured and adheres to legal guidelines. This ensures the beneficiary maintains their quality of life without risking their benefits. Consulting a Special Needs Trust Attorney provides peace of mind and legal security.
Why a Special Needs Trust is Important
Families who are caregivers to people with disabilities frequently wonder what will happen to their loved ones after they die. Having a big financial windfall or inheritance may disqualify them from assistance without a solid financial plan. Losing these benefits can create challenges in affording healthcare, housing, and other essential services.
A special needs trust solves this issue because it would manage the funds appropriately. In such cases, if the money is in a trust, it does not count as personal property, so the individual can continue receiving subvention arrangements or benefits while the trust can be used for other out-of-pocket expenses.
Creating a special needs trust not only ensures financial protection. Families know their loved ones will always have the money necessary to address additional needs and sustain an acceptable quality of life. A trust ensures that someone else is controlling the money and that it cannot be misused, and lessens the risk of financial exploitation.
Types of Special Needs Trusts
There are two primary types of special needs trusts, and the right type will depend on the family’s situation and goals in terms of wealth accumulation. First-party and third-party trusts are the two most common types.
A first-party special needs trust is funded with the individual’s own money. This might include money from an inheritance, a lawsuit settlement, or other personal funds. It has strict rules, including that it must be paid back. Upon the death of the beneficiary, any leftover funds must go to pay back for the expenses incurred during Medicaid use.
A third-party special needs trust is set up by someone other than the beneficiary, a parent or grandparent, perhaps. This trust is not subject to payback obligations, so the funds remaining can be distributed to other family members or charitable organizations. For this reason, many families choose third-party trusts when they are planning for a loved one’s future.
How To Setup a Special Needs Trust
Special needs trusts should be established with both planning and care so that all of the legal requirements and purposes are met. Families need to work with a Special Needs Trust Attorney to ensure that the trust is properly drafted. On the flip side, a poorly structured trust could invite legal trouble or loss of benefits.
To start, families must select who will serve as the trustee. The role of the trustee essentially is managing the trust and making investment or financial decisions for the beneficiary. This should be someone trustworthy, financially responsible and who is willing to abide by the rules of the trust.
The next step is for families to determine what assets will be placed in the trust. That can be cash, stocks, real estate, or life insurance policies. After setting up the trust, it needs to be properly maintained. The trustee will have to invest the money, pay bills, and ensure that the beneficiary’s needs are being met.
How a Special Needs Trust Preserves Government Benefits
Many individuals with disabilities depend on government programs such as Medicaid and SSI to help pay for health care and living costs. However, those programs have strict income and asset limits. For instance, if a person with special needs has too much money in his or her name, they may lose assistance.
A special needs trust avoids the problem by separating the funds. Since the money belongs to the trust and not the individual, it doesn’t count toward asset limits. This allows the beneficiary to retain access to essential benefits while also tapping into supplemental financial support.
Use of the trust funds can cover supplemental costs for the person with the disability, such as therapy, home modifications, education, and recreation. The trustee must abide by the rules so that the government benefits are not disturbed and that the beneficiary is provided a better quality of life.
Choosing the Right Trustee
The special needs trust is managed by a trustee. They have to abide by legal standards, manage finances prudently, and act in the beneficiary’s best interest. Families should be judicious with who they select for this job.
Trustees may be family members, close friends, or professional trustees. Each of these has its pros and cons. A family member may know the beneficiary well and understand their needs but may lack the financial expertise to manage the trust.
Others feel a hybrid of both. They name a family member to be the primary trustee and have professional help with managing the financials. This not only makes sure that the beneficiary’s needs are covered but also helps maintain the management of the trust.
How Does a Special Needs Trust Relate to Your Estate Plan?
For parents of a child with a disability, a special needs trust is a critical element of their estate planning. Any inheritance paid directly over to the individual or their estate could affect any benefits they are entitled to following their death, for example, if they are eligible for long-term care.
Most families finance the trust using life insurance policies. This ensures that when you or your custodians are no longer living, funds will be available to support the beneficiary. Types Of Assets Involved: Besides property, other assets that can be put into a trust include savings accounts, investments, and real estate.
An estate plan should also include a letter of intent. This paperwork details the care the beneficiary requires; this includes supporting anyone in their needs, routines, and preferences in daily life. Although not legally binding, it clarifies for future caregivers and trustees what best supports the individual.
Common Mistakes to Avoid When Creating a Special Needs Trust
Establishing a special needs trust involves careful planning. Avoid these common mistakes to prevent legal problems or unwise decisions. One error is not utilizing a qualified Special Needs Trust Attorney. A badly crafted trust might disqualify the beneficiary from receiving assistance, or give rise to needless tax complications.
One more mistake is picking a bad trustee. The trustee needs to be responsible and be able to manage the trust’s finances. Some families just choose a relative without assessing the relative’s suitability to take on financial and legal duties. If the trustee mishandles funds or breaks the rules, the beneficiary could lose financial security.
Families also should not make the beneficiary a co-trustee. That may effectively allow them to control the funds, meaning the money will be considered a personal asset. If this occurs, they may no longer qualify for Medicaid and SSI.
A Special Needs Trust: The Long-Term Benefits
If done well, a special needs trust can provide life-long financial security. It provides financial support while retaining essential benefits, ensuring people with disabilities have adequate resources. Families have the peace of mind that their loved one is taken care of even in their absence.
A special needs trust also protects against financial exploitation. We first saw the potential financial exploitation of people with disabilities in this region in the early 1990s when consumers at Pinelands became vulnerable without appropriate protections. Trustees make sure money is used for the intended purpose and prioritize the beneficiary’s best interests at all times.
With foresight and assistance from a Special Needs Trust Attorney, families can establish a lifetime of protection in a trust. By trusting something for their money or sudden gains, individuals with disabilities can gain more financial independence without getting disturbed by their linearly forced into financial attributes.
Conclusion
A special needs trust is a legal arrangement that allows you to provide for the financial needs of a person who has special needs and ensure that they have access to the resources they need throughout their lifetime.
It safeguards benefits, allows for responsible financial management, and gives peace of mind to families. With careful planning, families can ensure that the person has the necessary funds for their needs without jeopardizing their benefits due to the estate’s inclusion.
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FAQs
- Does a special needs trust pay for housing and food?
If the beneficiary receives benefits such as SSI, the trust should not pay for housing or food, as this may affect their benefits.
- What does the money in a special needs trust do when the beneficiary passes away?
Medicaid also needs to be repaid with the remaining funds of a first-party trust, while a third-party trust can distribute funds to other family members.
- Can changes be made to a special needs trust after it has been established?
Some special needs trusts can be modified if necessary, although this depends on how they were initially drafted and state laws.
