Photo Credit: Phillip Booth
What is a special needs trust (SNT)?
A special needs trust is a legal document that allows a person who qualified for needs-based government benefits to receive gifts, inheritances, or settlements from a lawsuit while maintaining eligibility for government benefits like Medicaid and Supplemental Security Income (SSI). These trusts are crafted to supplement but not typically replace what the government is already paying for. When implemented correctly, setting up a special needs trust can allow your loved one to have a much better quality of life than they would have had if they were solely reliant on government benefits.
It is important to note that there are two main categories of special needs trusts:
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Third-Party Special Needs Trust: This is set up by someone other than the beneficiary, typically a parent, grandparent, or legal guardian. One of the main benefits of this type of trust, which is the preferred method of leaving assets to a disabled beneficiary, is that upon the beneficiary's passing the person who originally created the trust can leave the assets to whomever they want to.
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First-Party or Self-Settled Special Needs Trust: This is funded with the beneficiary's own assets, often through inheritances where a special needs trust was not previously created by the person leaving the inheritance, personal injury settlements, or other forms of income. While this is essential to allow the disabled beneficiary to maintain their government benefits and it operates much like the third-party special needs trust during the beneficiary's lifetime, this does have one major drawback. Upon the beneficiary's passing, the government must be paid back all amounts they spent on the beneficiary during the beneficiary's lifetime from the remaining balance of the trust before any leftover funds (if there are any) pass on to the beneficiary's heirs.
Who Needs a Special Needs Trust (SNT)?
Do you have a family member who has an intellectual and/or physical disability who may need care in the future? Do you have questions about the best way to protect your family member’s assets? Most disabled adults are eligible for social security disability as well as Medicaid health insurance. They may also be eligible for supervised housing or skilled nursing home care, but assets in their names can affect their eligibility for benefits. The need to consider how to preserve assets without losing government benefits can make these decisions complex. For many families a special needs trust (SNT) is the answer. Keep reading to learn more about ways to protect your loved one’s assets so they can be used for needs that government benefits may not cover.
We have helped many clients who have a family member who has special needs. A major concern is the need for supervised housing at some point in their lives. While government benefits cover basic needs, everyone has additional expenses such as clothing, personal care, and recreational activities. If that person has assets in their name or will inherit assets, they could lose benefits, or their assets may be taken to repay benefits received.
Setting Up a Special Needs Trust
Creating a special needs trust involves several steps:
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Choose a Trustee: Select a trustee who understands the beneficiary's needs and responsibilities under the law. This individual or entity will manage trust funds and make distributions on behalf of the beneficiary.
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Drafting the Trust Document: Work with an attorney experienced in special needs planning to draft a trust document that complies with federal and state laws. Your attorney can help you craft the best strategy for how the trust will be funded, managed, and distributed.
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Funding the Trust: Determine what assets will fund the trust, whether through direct contributions, life insurance policies, or other means. The trust should be adequately funded to meet the beneficiary's long-term needs.
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Administration and Reporting: Trustees must adhere to strict guidelines for managing the trust, including keeping accurate records, filing tax returns, and providing periodic reports to beneficiaries and state agencies as required.
Conclusion
Special needs trusts play a pivotal role in ensuring individuals with disabilities receive the support they need without jeopardizing essential government benefits. By understanding the different types of trusts available, their benefits, and the steps involved in establishing one, families and individuals can secure a stable financial future for their disabled loved ones while enhancing their quality of life. We recommend you consult with one of our knowledgeable attorneys to create a personalized trust that meets your specific goals and safeguards your loved one's well-being for years to come.
Call us today at 803-358-7214 or complete the contact form to schedule a meeting with our experienced estate planning attorneys. We can answer your questions about which type of SNT is best for your loved one and help you come up with a comprehensive strategy to protect them and your other heirs.
For more information about what to do when your special needs child becomes an adult click here.
