Trust Planning

Trust Planning

Estate Planning and Wealth Management

Quick Guide to Special Needs Trusts

What is a Special Needs Trust?

Special Needs Trusts, also called Supplemental Needs Trusts, were recognized by Congress in 1993. These trusts are designed to meet the special needs of a disabled person, such that the person remains eligible for federal benefits such as Supplemental Security Income (SSI) and Medicaid. For a person with a long-term disability, federal benefits are not usually enough to meet more than very basic needs. The Special Needs Trust meets needs not addressed by federal programs and can be used for expenses needed to improve the quality of life of the disabled person.

Aren't disabled person's already well taken care of by the government?

SSI eligibility rules require a disable person to have less than $2,000 in assets, not including car and home. SSI benefits are typically about $400 a month. Medicaid of course pays for necessary medical expenses. Social Security and Medicare and not issues here as they are not based on how much income or assets the disabled person has. Unless they have other sources of income, disabled person's usually live very frugal and often limiting lives.

What kind of people can benefit from a Special Needs Trust?

There is a great diversity: veterans returning from war with traumatic brain injury, individual's with life-long mental health problems, the physically disabled, people who can't work due to chronic health problems (for example, due to an organ transplant). The individual can be a child or an adult. They may come from a poor or a wealthy family. Without a Supplemental Needs Trust, bequeathing property or money to a disabled child could cause them to lose benefits, and put them into a worse situation than if you gave them nothing.

Who can set up a Special Needs Trust?

The disabled person can set one up for themselves (called a "first party" trust) or the family can set the trust up (called a "third party" trust). Special Needs Trusts are complicated and MUST be done under the guidance of a lawyer, as any mistakes could remove the disabled person's eligibility for benefits. Another example of the unusual situations these trusts deal with: in some circumstances, some trusts must pay back Medicaid for expenses once the disabled person dies.

Are there limitations to what a Special Needs Trust can do?

Yes, you cannot, for example, buy groceries with trust fund money (but you can use it to go on a vacation, which would improve your quality of life). The trust must be set up so that a trustee, not the individual benefiting, is in charge of trust decisions and assets.

Can I change a Special Needs Trust once it is set up?

You can't revoke it (it is irrevocable). But you may be able to put language in the trust formation document that will make the trust flexible and amendable. This is where you, the creator of the trust, will benefit from reading up on the issues, and where a very experienced attorney will be critical. Among the issues to pay careful attention to are trust termination and dissolution in special situations. And, as always, trustee choice and succession of trustees (in the event of a trustee no longer being able or competent to serve), requires a lot of thought and skill in writing the description of the trust.

Are there other benefits of Special Needs Trust?

These trust assets are protected from creditors (the Special Needs Trust, in legal terms, can be thought of as a specialized form of a Spendthrift Trust), and assets are protected from legal seizure (say if the disabled person is found liable in a car accident). The trust can also be a way that friends and family can support you over time. A third party Special Needs Trust can only be set up by a parent, grandparent or guardian of the disabled person, but friends could still contribute to the fund. It can also be used as part of a settlement.

Who should be Trustee?

This is a very personal decision. And, a very, very important one. A Special Needs Trust is one case where there may be a clear benefit from the involvement of a professional trustee (sometimes called a corporate trustee). Note that this is NOT a recommendation for using a bank as a trustee; other areas of this website address this issue in detail. Consider having co-trustees: a family member that knows the situation of the disabled person and deeply cares about them, plus a professional trustee that can stand up to the disabled person if necessary: for example, a person with traumatic brain injury not only has their motor skills impaired, but their emotional processing gets whacked too, which means they may not always make rational decisions, and yet they may still argue strongly and persistently to get their desires fulfilled. Having a co-trustee outside of the family may save the sweetness in a long-term family relationship. Also, a professional trustee will know how to get the annual accountings done, when and who to hire as experts, financial planners, etc. Another reason for a professional trustee is that the disabled person may live a long time, even longer than a friend or family member chosen as trustee. My grandfather lived 30 years after the car accident that caused his disabling and severe brain injury. He outlived all trustees named in his will.

How is a Special Needs or Supplemental Needs Trust different from a Cooperative Master Trust?

A Cooperative Master Trust is a special type of Special Needs Trust created by a non-profit for the benefit of a group of individuals (such as those in a nursing home). The assets are pooled for the benefit of everyone, without individual say-so by specific family members on trust decisions.

Resources on Special Needs Trusts. Find the best books and websites.