Special needs trusts can provide peace of mind that your loved one with a disability or chronic illness will be taken care of in your absence.
Government programs can play an integral role in enhancing the quality of life of people with disabilities. By including a special needs trust (SNT) in your estate plan, you can support your child or dependent without compromising their eligibility for essential benefits.
This article provides an overview of special needs trusts, including how to create one to provide for your child’s functional and financial needs.
A Summary of Special Needs Trusts
A special needs trust is a legal arrangement that provides financial support for someone who is physically or mentally disabled or chronically sick. Typically, a parent, grandparent, or sibling acts as a grantor to establish an SNT, names their loved one as a beneficiary, and appoints a trustee to manage the fund.
Needs-based programs like Medicaid and Supplemental Security Income (SSI) have rigorous income and asset restrictions. The funds in an SNT do not count as the beneficiary’s personal income, which could otherwise jeopardize their eligibility.
Assets in special needs trusts are commonly used to cover medical or dental expenses, therapy or rehabilitation services, transportation, housing, and other costs not fully covered by public assistance programs.
The three primary types of special needs trust include:
- Third-Party SNTs: Anyone can establish a third-party SNT (also called a supplemental needs trust) and fund it with life insurance policies, gifts, or other assets to benefit a loved one with a disability or illness.
- First-Party SNTs: Also called self-settled trusts, these are often set up when a person with a disability inherits assets or receives a lawsuit or divorce settlement that could disqualify them from public benefits.
- Pooled SNTs: These trusts are managed by non-profit organizations to benefit multiple people at once. When a person passes, the funds in their individual account are used to reimburse the state for Medicaid services, and leftover assets are transferred to their remainder beneficiary.
How to Set Up a Special Needs Trust
Setting up a special needs trust can be complex and requires the use of technical and process language. If you’re considering this for a family member, it’s crucial to consult with your financial advisor and estate planning attorney to ensure your trust document is compliant. The setup process typically includes:
- Assessing your beneficiary’s needs including projected monthly bills, rehabilitation and long-term care costs, and other expenses to maintain their quality of life. Then, you can set parameters in the trust documents for how and when funds or assets will be distributed.
- Choosing a trustee. You can name yourself, the beneficiary, a caregiver, or another third party to oversee and manage the trust funds. The trustee should have a robust understanding of your beneficiary’s current and future needs, among other qualifications. Learn more here about how to choose a trustee.
- Working with your estate planning team to create the SNT document and ensure compliance with state laws. In some cases, trusts may require witnesses and notarization to be considered legally valid.
- Signing and funding the special needs trust with cash, real estate, investments, life insurance policies, or other assets.
- Reviewing your trust document periodically and updating it to reflect your beneficiary’s evolving needs and expenses.
Start Planning for Your Loved One
By creating a special needs trust for your child or grandchild with a disability, you can rest easy knowing that they will have the financial resources and care they need to flourish after you’ve passed away.
EverPar can answer your questions, provide objective advice, and collaborate with your estate planning attorney to create a special needs trust tailored to support your family member’s unique needs.
Let’s plan for your loved one’s future.
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