Do You Have a Loved One with Special Needs? Consider a Special Needs Trust

Thu Aug 31, 2023 | Trusts | Share

One of the primary purposes of estate planning is to provide for the needs of your loved ones. For people who have disabled family members or are themselves facing considerable disabilities, a special needs trust can ensure a higher quality of life than would be otherwise available. A special needs trust attorney can discuss with you the benefits that these trusts can provide for those who will need extra care in the future. 

Special Needs Trusts Explained

Sometimes referred to as a supplemental needs trust or SNT, a special needs trust is a trust fund that is established to provide for the future needs of someone with mental or physical disabilities or a chronic illness.  These trusts are established by federal law to protect access to government benefits by those who suffer from lifelong disabilities or illnesses. 

There are two main types of special needs trusts: 

• First-party special needs trusts are funded by assets that belong to the beneficiary. These are typically established later in the beneficiary’s life when they become disabled. The assets placed into the trust can only be used for the sole benefit of the beneficiary. For example, Julia is diagnosed with a terminal illness. She knows that her condition will deteriorate rapidly but she may require years of intensive care. She can create a special needs trust funded by her own assets to pay for her care when she is no longer able to care for herself. Note that first-party special needs trusts are irrevocable, which means that they cannot be modified or terminated by the grantor.   
• Third-party special needs trusts are funded by someone other than the beneficiary. These are typically established earlier in the beneficiary’s lifetime, recognizing that they will need care in their later years. An example of a third-party special needs trust would be parents who create a trust for their child who has severe mental disabilities and will never be able to take care of himself. Third-party special needs trusts can be revocable or irrevocable. 

If you are worried about your own needs or the needs of someone else in your family, a knowledgeable special needs trust attorney can discuss with you how you can provide for them when they need it most. 

Why Special Needs Trusts Are Important

Those with special needs often qualify for important government benefits, namely Medicaid and Supplemental Security Income (SSI). The challenge is that both of these programs are income-qualified. If the recipient’s income exceeds the income ceiling, they no longer qualify for those benefits. As a result, the assets and income they have are quickly exhausted by their long-term care expenses. 

For many who are disabled, their sole source of income is what they inherit through their families. Their parents may plan for their needs by arranging for substantial assets to pass to them upon their death, inadvertently disqualifying them from SSI and Medicaid. Their inheritance simply doesn’t go as far as they thought it would and their loved one does not receive the quality of care that they had hoped. 

For these reasons, the government established special needs trusts. By creating a special needs trust, you can protect your loved one’s access to SSI and Medicaid and then use trust assets to enhance their quality of care. 

How Special Needs Trusts Can Be Utilized 

The assets held in trust for the special needs beneficiary are not counted against the beneficiary’s income eligibility. This allows the person to receive higher quality care than they would receive through government benefits without unnecessarily draining their assets. That said, the assets held in a special needs trust cannot be used for whatever they may need. Trustees must be careful that disbursements do not jeopardize the beneficiary’s SSI and Medicaid benefits. 

The general rule is that special needs trusts can be used to pay for benefits and services that SSI and Medicaid do not provide. Disbursements can therefore be used to pay for this such as additional healthcare services and personal care. For example, allowable distributions can include the following healthcare expenses: 

• Non-necessary or experimental medical care, procedures, or services
• Medications
• Dietary supplements
• Additional medical equipment such as mechanical beds or wheelchairs and other mobility devices
• Supplemental and in-home nursing care and therapies
• Dental or ophthalmic care
• Mental health services
• Implants, orthotics, or artificial limbs
• Physical and rehabilitative therapy

Special needs trusts can also make disbursements for a variety of non-healthcare needs such as the following: 

• Home improvements to aid in accessibility such as wheelchair ramps or handrails
• Transportation expenses
• Recreational and travel expenses
• Educational costs including tuition
• Personal care 
• Clothing
• Household goods 
• Living expenses
• Insurance premiums
• One motor vehicle 

Reviewing this list should give you an idea of how a special needs trust can enhance the quality of your own life or the life of your loved one. 

How to Create a Special Needs Trust

Creating a special needs trust is largely the same process as setting up any other type of trust. One unique requirement for first-party special needs trusts must be established before the beneficiary turns 65. Otherwise, the basic process is the same. 

1. Choose a beneficiary. This is typically obvious, as the trust is created for the specific purpose of meeting someone’s special needs. 
2. Choose a trustee. The trustee will be responsible for administering the trust for the support of the beneficiary. This means that the trustee should be willing and able to perform these duties. While the grantor (the person creating the trust) will often name themselves as the trustee for third-party trusts, this is obviously not an option for first-party trusts. If naming yourself as the trustee, you should give some thought to who will serve as a successor trustee after you are gone. Various financial institutions and attorneys also provide trustee services.
3. Draft and execute the trust documents. The trust agreement must be memorialized in a written document that lays out all of the details of the trust. While it is possible to draft your own trust document, failure to meet specific legal requirements can jeopardize the validity of the trust. For this reason, many people choose to have their trust documents drafted by a qualified estate planning attorney.  
4. Fund the trust. The last step is to transfer whatever assets are listed in the trust document into the trust’s name. This may require the transfer of title or completion of other legal documents in order to ensure that the trust is properly funded.   

Contact Ellis Law Group to Talk to a Special Needs Trust Attorney Today 

If you are concerned about meeting the needs of those you care about, we can help you develop an estate plan that provides the future that you want for them. Call us today at 561-910-7500 or contact us online to schedule a consultation.