Why Should I Establish a Special Needs Trust for a Loved One?

  • Trust
May 20, 2024

Are you considering leaving assets in your estate to a loved one who is currently receiving public benefits? If so, consider incorporating a third-party Special Needs Trust into your estate planning.

While there are other types of Special Needs Trusts, this article will focus specifically on third-party Special Needs Trusts. This kind of trust is funded by someone other than the beneficiary, typically a parent or guardian, using assets such as an inheritance, gift, or life insurance proceeds.

Special Needs Trusts can be revocable or irrevocable and created during the grantor’s lifetime or via testamentary disposition (such as in a will or trust).

What is a Special Needs Trust?

A Special Needs Trust, sometimes referred to as a Supplemental Benefits Trust, is an estate planning tool that allows you to leave assets to a beneficiary without reducing their eligibility for public benefit programs such as Social Security, Supplemental Security Income (SSI), or Medicaid.

A Special Needs Trust is designed to improve a beneficiary’s quality of life while also protecting the beneficiary if they become eligible, or already are eligible, for public benefits. In addition, Special Needs Trusts protect benefit eligibility that could otherwise be in jeopardy if a financial gift, asset, or inheritance was distributed to the beneficiary outright. To avoid ineligibility, a grantor (the person who creates the trust) will establish a Special Needs Trust for the beneficiary. The Special Needs Trust is managed by a trustee, who is tasked with making discretionary distributions to the beneficiary.

How Special Needs Trust Works

Public benefit programs have income and asset limits – if a beneficiary receives a financial gift, asset, or inheritance that subsequently pushes the beneficiaries’ income and assets past the allowable limit, the beneficiaries’ eligibility for public benefit programs could be reduced or even eliminated entirely.

However, assets held in a properly drafted Special Needs Trust are not considered available resources to the beneficiary. The grantor will select a trustee to manage, invest, and disburse the funds held in the Special Needs Trust to the beneficiary. Importantly, the trustee has a fiduciary duty to act and make distributions in the beneficiaries’ best interest. In addition, the trustee must follow the specific guidelines set forth in a properly drafted Special Needs Trust, as the distributions themselves could be considered income if the trust is not drafted or followed correctly.

What are the Benefits of a Special Needs Trust?

As already mentioned, a key benefit of a Special Needs Trust is assets held within it are not considered when determining eligibility. Thus, you can be certain your loved one is receiving financial support without jeopardizing their eligibility for income-restricted programs as long as the trustee complies with the trust language.

In addition, a Special Needs Trust is a special kind of trust designed to supplement – not to replace, impair, or diminish – a beneficiary’s public disability benefits, meaning money held in the Special Needs Trust will cover expenses not already covered by governmental benefits. For example, common uses of Special Needs Trust funds include:

  • Rehabilitation and therapy services
  • Medical and dental expenses not covered by insurance
  • Vehicle/transportation services
  • Entertainment and travel expenses
  • Home and accessibility modifications
  • Educational expenses

Explore the Benefits of Special Needs Trusts with Our Expert Attorneys

Overall, a Special Needs Trust will provide your loved one with financial support without disqualifying them from public benefits. However, the Special Needs Trust must be carefully drafted to ensure compliance with both state and federal law. Thus, a qualified attorney should be consulted prior to establishing a Special Needs Trust to ensure the trust is drafted to meet your loved one’s specific needs and to ensure compliance with each state’s varying requirements.

Contact the expert estate planning team at Jorgensen, Brownell & Pepin, P.C. to learn more today!

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