Special Needs Trusts

You play an essential role in the life of your special needs child. They depend on you for much of their medical, emotional, and financial support. Government assistance may also be critical. But what happens to your child when you die? A special needs trust can provide for your child financially. It does so while protecting their eligibility for government assistance.

This article explains special needs trusts. Trusts are complex, so it’s best to talk to a trust planning attorney in your state for help. They can ensure your trust meets your goals and protects your child.

What Is a Special Needs Trust?

A special needs trust (SNT) is a type of irrevocable trust. It gives financial support to people with disabilities. An SNT can support your loved one without risking their government benefits like Medicare, Medicaid, and Supplemental Security Income (SSI). Your child doesn’t own the trust’s assets. The trust does, so the assets aren’t counted when determining their eligibility for government programs. An SNT is also called a supplemental needs trust.

There are three types of special needs trusts you can set up for your child:

Third-Party Special Needs Trust

A third-party SNT is also called a family trust. A family member or guardian usually creates it. You can fund the trust while alive or with a life insurance policy when you die. You can decide how the trustee distributes the trust funds. For example, distributions can only be used for expenses public assistance won’t cover.

First-Party Special Needs Trust

In a first-party SNT, the disabled person funds the trust using their assets. It’s often used when a disabled person receives a large sum of money, such as:

• An inheritance
• A payout from a life insurance policy
• A personal injury settlement

These large sums can affect their eligibility for public benefits, so putting them into a trust will allow them to maintain their eligibility.

Pooled Trust

A pooled trust is also called a community trust. A nonprofit organization typically administers them. These trusts pool funds from multiple families with donations from the community. The nonprofit names each participant as a trust beneficiary.

What Are the Benefits of a Special Needs Trust?

A special needs trust typically won’t replace your child’s government benefits. Instead, it supplements those public benefits. The main advantage of an SNT is the peace of mind it provides. You know your child will have a supplemental source of income after you die. Your child will have the resources they need to thrive.

You define the trust’s terms in the trust document. You can ensure the trust funds get used for the correct purposes. An SNT is also irrevocable. That helps protect the trust assets from creditors and lawsuits. It also keeps your child eligible for benefit programs.

How Do I Set Up a Special Needs Trust?

Making an SNT requires thought and expertise. Following are the general steps for creating an SNT:

• Consider your child’s needs: The most important part of making an SNT is ensuring it meets your child’s long-term needs. You’ll need to answer questions like how much money your child will need and how the trustee will distribute the funds. An attorney experienced in creating SNTs can help answer these questions.
• Pick a trustee: The trustee is the person who manages the trust. They’re responsible for investing the trust assets and making distributions. You can name a trusted friend or family member for this role. There are also professional trustees you can hire. You can make yourself trustee if you create the trust while you’re still alive.
• Create the trust document: The trust document is a legal document that includes the trust’s terms. The trust document typically includes information like the trust’s purpose and instructions for supporting your child, the trustee’s responsibilities, and who will receive the trust’s funds if your child dies.
• Fund the trust: The final step is to move assets into the SNT. The trust owns the trust assets, not your child. The trustee manages the assets and makes distributions to support your child.

Contact an Estate Planning Attorney for Help

An SNT can provide for your special needs child after you die. It can do so while ensuring your child stays eligible for government programs. But, an SNT is complex. Contact an experienced estate planning attorney for help. They can advise you in creating an SNT for your child.