A special needs trust is a legal structure that allows you to set up funds for your loved one with disabilities. This can help them cover a variety of expenses, from medical or dental care to personal care givers and rehabilitation services.
A properly designed trust should protect a child's eligibility for government benefits, such as Supplemental Security Income (SSI) and Medicaid, while still providing funds to cover their needs. Ideally, the trustee of the trust will be someone with whom the beneficiary has a close relationship. Typically, the trustee will be a parent or legal guardian, but this can change depending on the situation.
Trustees of special needs trusts are responsible for distributing the funds in the trust and making investment decisions. They also are accountable for ensuring that the trust is compliant with state and federal laws.
Some trustees are professional, such as an attorney or a financial advisor, while others may be family members. If a professional is selected, it is important to select an attorney who understands both the law and the needs of the beneficiaries.
In addition, a trustee should be knowledgeable about the needs of your child or adult relative and how those needs might change over time. For example, if your child has a disability that requires ongoing medical and physical care, you may want to have a trustee who can ensure that the trust funds are used to pay for those costs.
A special needs trust is an account that holds assets, such as money or real estate, that will be used to fund a person's disability-related needs. It can include a variety of assets, such as cash, stocks, real estate or retirement accounts.
These assets can come from a number of sources, including life insurance policies, retirement plans, personal injury awards and unplanned-for inheritances. The person who receives these assets, called the "beneficiary," can then use those funds for things like education, recreation, transportation and recurring bills.
However, any sudden source of money, such as a personal injury settlement or the proceeds from an inheritance, may jeopardize the person's eligibility for government programs like SSI and Medicaid. The best way to avoid this is to make sure that these assets are put into a special needs trust before you distribute them to the person.
The type of trust you set up will depend on your needs, the amount of money that you are contributing and the individual's disability. For example, if your child has Down syndrome, you might want to create a first party special needs trust that uses the child's own earnings, inheritance or a personal injury award.
You may also decide to set up a pooled special needs trust, in which the beneficiaries share a common fund with other disabled people. These are usually created by nonprofit organizations that collect money from many families and then invest it for the benefit of beneficiaries.
A person with a disability can qualify for Social Security Disability Insurance (SSDI) and Medi-Cal, along with Supplemental Security Income (SSI), if he or she meets the requirements for those programs. However, those benefits can be reduced or eliminated if the disabled person gets any money from a family member. Congress decided that it would be unfair to take away these vital benefits from a disabled person who received an inheritance or settlement of a personal injury lawsuit, so Congress created a legal structure called a special needs trust.
A special needs trust can pay for many things that a person with disabilities often needs but cannot afford. It can provide life-enhancing items, such as physical therapy and medical treatments, as well as some utilities. It can also provide life-enhancing activities, such as education, entertainment and companionship.
These items can help a person with a disability lead a more fulfilling life and enjoy more of the pleasures of life. They can even help a person to become self-sufficient.
The money in a special needs trust can help a person with a disability live the life that they want and deserve. It can provide a lifeline to government benefits, such as SSDI and Medi-Cal, that might otherwise be lost when a disabled person receives an inheritance or settlement of a personal injury claim.
It can also help to cover a person with a disability’s recurring expenses, such as food, housing and medical bills. These expenses can be a hardship for people with disabilities, but they can be covered with a special needs trust if the trustee pays them in advance from the trust’s funds.
There are some things a person with a disability cannot get through a special needs trust, though. Typically, this means the trustee must not give an SSI or Medicaid recipient cash or any kind of cash equivalent, or pay for food, shelter or any asset that could be converted into food, shelter or clothing. If the trustee decides to pay for these items, he or she must consult with a special needs planner who understands how state and federal law affect expenditures from a trust.
One of the most important things a trust can do for a person with a disability is to pay for his or her own transportation. A person with a disability can use the funds in a special needs trust to purchase a vehicle, but there are certain rules under SSI and Medicaid laws that must be followed.
Other items that a person with a disability can use the funds from a special needs trust to pay for include furniture and appliances. If a person with a disability is able to rent or buy a house, the trust can make that happen, but the beneficiary must be a legal resident of the state in which the property is located.
The best way to ensure that a special needs trust pays for what it is supposed to is by hiring a qualified attorney with experience in this field. The right attorney can guide you through the process, including setting up the trust and advising you about the responsibilities of the trustee.
There are some instances when you may need a lawyer to set up a special needs trust. For example, if the funds to be held by the trust are from a personal injury settlement, retirement plan, life insurance policy or other asset that is not owned by the disabled person. Also, if you are moving your beneficiary from one state to another, you'll need an attorney who is familiar with the laws in the new location.
A special needs trust (SNT) can be a valuable way to help your child with disabilities. It provides a legal structure to protect the beneficiary's assets from being counted when determining eligibility for government benefits, like Social Security Disability Income (SSI) and Medicaid.
You can set up a SNT yourself, with the help of a family member or a professional, but it's always best to consult with an estate planning lawyer first. These lawyers specialize in trusts and can ensure that you're following all of the legal guidelines and rules.
There are two kinds of SNTs — third-party and first-party, or self-funded. A third-party SNT is the type most people think of when they hear "special needs trust." It's funded with assets that don't belong to your disabled child, such as a windfall or inheritance. It can be set up as a revocable or irrevocable trust.
In a third-party SNT, you name a trustee who will oversee the management and distribution of the assets in the trust. Trustees can be parents or other relatives, or they can be corporate entities. They're responsible for making investment decisions, staying up to date on laws and regulations, ensuring that tax obligations are met, and distributing the funds as directed by the grantor.
Typically, you'll need to sign a trust document and transfer the funds to the trustee. This can be done electronically, by mail or in person at the courthouse. It is a good idea to have witnesses and notarize the documents.
Establishing a SNT is a complex process, and there are many factors to consider. The language used in the trust can vary greatly from one state to another, and it's important for all parties involved — including the trustee — to understand the terms of the trust agreement.
The trustee will be a person, organization or trust fund that has the responsibility to manage and invest the trust funds. The trustee must act in the best interest of the trust's beneficiary and cannot use the funds for any purpose other than benefiting your disabled loved one.
Trustees are often people you know, but they can also be professionals or non-profit organizations that are specialized in special needs planning. A professional trustee is an ideal option if you don't have a close relative or friend who can act as a trustee.
Choosing a trustee who will have the most insight into your disabled child's unique situation is an important decision. Ideally, you'll want to choose a co-trustee, where the parent or relative and the professional trustee share the responsibility of managing the trust.
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