A special needs trust provides financial support for a person with special needs without jeopardizing their eligibility for government benefits. Special needs trusts can be created by parents, grandparents, other family members, or friends of the person.
The beneficiary of a Special Needs Trust (SNT) must have a disability recognized by section 1614(a)(3) of the Social Security Act. A complete list of recognized disabilities for adults and children is available here.
Who needs a Special Needs Trust?
Anyone who has a loved one with a disability may want to consider creating a special needs trust, mainly if the person receives government benefits such as Supplemental Security Income (SSI) or Medicaid. These programs have asset limits, and if the person with a disability has too many assets, they may lose their eligibility for benefits.
Benefits of a Special Needs Trust
There are many benefits to creating a special needs trust, including:
Preserving eligibility for government benefits.
Providing financial support for the person with a disability beyond what government benefits can cover.
Protecting the person with a disability from financial exploitation.
Giving the person with a disability more control over their finances.
Special Needs Trusts (SNTs) typically pay for expenses beyond the necessities of life, such as education, recreation, counseling, transportation, and medical care. Here are some specific examples:
Public benefits do not cover medical and dental expenses.
Special equipment not covered by public benefits, such as wheelchairs or specially equipped vans.
Training and Education
Travel, including the cost of a companion, in some cases.
Transportation costs include car payments, bus passes, or ride-share fees.
Recreation and entertainment expenses, such as summer camp, movies, social events, and sports equipment
Computers and other electronic equipment
Legal or guardianship expenses
How Does a Special Needs Trust Work?
A special needs trust is a legal entity with a tax identification number and bank account. The trustee is responsible for managing the trust's assets and making distributions to the beneficiary.
The trustee can only distribute to the beneficiary for expenses not covered by government benefits. These expenses may include things like education, recreation, and travel.
Funding a Special Needs Trust
You can fund a special needs trust with any asset, including cash, stocks, bonds, real estate, or even life insurance proceeds.
Choosing a Trustee
The trustee of a special needs trust should be trustworthy, responsible, and knowledgeable about special needs trusts. The trustee should also be willing and able to manage the trust's assets long-term.
Managing a Special Needs Trust
The trustee of a special needs trust has several responsibilities, including:
Investing the trust's assets
Paying the trust's expenses
Filing tax returns for the trust
Making distributions to the beneficiary
Using a Special Needs Trust
The trustee of a special needs trust can make distributions to the beneficiary for any expense not covered by government benefits. These expenses may include things like education, recreation, and travel.
What Can a Special Needs Trust (SNT) NOT Be Used For?
Understanding what an SNT cannot be used for to preserve public benefits is essential. Supplemental Security Income (SSI) covers food and shelter expenses, so using SNT funds for those purposes may be considered "in-kind support and maintenance (ISM)" and may reduce SSI payments. It is also impacting Medicaid benefits, housing subsidies, and more.
If you want to help your child cover costs related to housing or food, consider an ABLE Account for these expenses. (Note: beneficiaries can have an SNT and an ABLE Account.)
Special needs trusts can be a valuable tool for financial support for people with disabilities. If you have a loved one with a disability, you may want to consider creating a special needs trust on their behalf.
Here are a few tips for creating and managing a special needs trust:
Work with an attorney who specializes in special needs trusts.
Choose a trustee who is trustworthy, responsible, and knowledgeable about special needs trusts.
Fund the trust with a variety of assets to reduce risk.
Keep good records of the trust's assets and distributions.
If you’re looking for more information, episode 20 of our podcast discusses SNTs in depth. You can also download our SNT guide. Of course, you can also schedule a consultation today to discuss setting up a Special Needs Trust for your child. We're here to help!
Additional Sources and resources:
National Association of Disability Lawyers (NADD): https://www.nadd.org/
Special Needs Alliance: https://www.specialneedsalliance.org/
Special Needs Answers: https://www.specialneedsanswers.com/