Estate Planning and the Special Needs Trust

Estate Planning and the Special Needs Trust

When it comes to estate planning, trusts are often a popular legal tool to make plans and protect assets. For families who have children or loved ones with disabilities, Special Needs Trusts are vital for good legal plans. There are many benefits to planning ahead and preparing your children and loved ones for the future.


What is a Special Needs Trust?

A Special Needs Trust (SNT), also known as a supplemental needs trust, holds and protects the financial assets for the benefit of a disabled beneficiary. The beneficiary’s disability must be recognized under the Social Security Act in order to qualify for this type of trust. There are four major types of disability that can qualify someone for a Special Needs Trust: physical, developmental, sensory impaired, and behavioral/emotional. According to the US Census Bureau, between the years 2008 to 2019, we saw the biggest increase in special needs for cognitive difficulties.


Benefits of a Special Needs Trust

  1. Does not jeopardize the beneficiary’s access to government assistance
  2. Assets used to help the beneficiary
  3. Maintains quality of life for beneficiary

A SNT is especially important for beneficiaries who depend on government programs, like Medicaid.


Types of Special Needs Trusts

There are several types of special needs trusts. A First Party Special Needs Trust receives its funding from the person with disabilities, as long as they are under 65. The funding could come from lawsuit proceeds, inheritance, or lump sum disability benefits. This trust can be established by the special needs child, parent, grandparent, or guardian. It will not affect eligibility for the person with disabilities’ government benefits.

Third Party Special Needs Trust allows family members to use their assets to fund a trust that benefits a person with special needs. This does not negatively impact their eligibility for government benefits. The funds in this trust type do not have a payback provision, so any remaining assets can pass to other beneficiaries listed.

Finally, a Pooled Trust is a community trust that a non-profit organization manages to fund  many special needs beneficiaries. In essence, the non-profit acts as a trustee and can be a good option for small families or people who want non-family member trustees. The property held by pooled trust for the beneficiary should not affect eligibility for government benefits.


Self-Settled Special Needs Trusts

In recent years, people have been talking more about the idea of a Self-Settled Special Needs Trust (Self-Settled SNT), also known as a First-Party Special Needs Trust. In particular, a Self-Settled SNT is an irrevocable, self-funded (by the beneficiary) trust, established by the beneficiary, legal guardian, or court order, using the beneficiary’s own assets.

Until 2016, an SNT could only be created by a 3rd party, like a parent, and not by the beneficiary’s spouse nor children. However, the Special Needs Trust Fairness Act allows competent, disabled persons to establish their own trusts. Today, for example, a beneficiary can receive inheritance, create the Self-Settled SNT himself, and fund the trust with the inheritance.

Like a traditional Special Needs Trust, the trustee can be almost anyone, including a family member, friend, professional trustee, or attorney. Unlike a traditional Special Needs Trust, however, the beneficiary is both the Grantor and beneficiary. Since the beneficiary is the owner of the assets, keeping the assets outside of a Special Needs Trust may disqualify him for government benefits. Thus, those assets should be paid into the SNT, which are then excluded from the government aid calculations.

Overall, a Self-Settled SNT allows a disabled beneficiary to benefit from assets within the trust while still receiving government benefits. However, in return, when the beneficiary passes away, the assets remaining in the trust will be used to reimburse the government for medical costs paid through government programs, including Medicaid. For a Self-Settled SNT to work, it must have a pay-back provision to Medicaid.


Hiring An Attorney

Planning in advance ensures that your loved ones are protected and provided for. In addition to a special trust, you should create advanced directives. These documents specify who should care for your child in the event of incapacity or death.

There are many intricacies to consider when creating an estate plan that involves a special needs trust. Call our office today to set up an estate planning consultation. Our estate planning attorneys are ready and available to help.


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