Special Needs Trusts

One way of providing for your child with special needs after your death is through a Special Needs Trust (SNT). Also called a “supplemental care trust,” an SNT is the only reliable, legal way to ensure that the resources you leave to your child are available when he or she needs it. An SNT allows your child access to more flexible funds, while ensuring that the assets are handled responsibly. On this page, we will describe the ins and outs of SNTs: their specific advantages, acceptable and inacceptable uses, and how you can fund an SNT for your child. We’ll also discuss revocable trusts, which can be set up in conjunction with your child’s SNT.

The services and funds available through government benefit programs, such as Medicaid, are helpful for medical and long-term care, but the actual income these programs provide is quite limited, often leaving many unmet needs. If you leave money to your child in a traditional will, it is considered an asset, therefore disqualifying your child from any public benefits. All the money in the will must be depleted before your child’s eligibility will be restored. This would leave only those funds provided by government benefits for your child’s long-term care and other important expenses.

To be sure that the money you leave for your child can be used as supplementary income, and that public benefits such as medical assistance will continue, the assets must be placed in the SNT and set up correctly. Although the government states that a person with a disability cannot have a trust, the SNT is acceptable because the trust does not belong to the person with a disability. He or she is nominated as a beneficiary of the trust and is usually the only one who receives the benefits.

It may be tempting to leave money for your child with special needs to one of your other children. A trust will protect all of your children from complicated money management situations, which can lead to resentment between family members. People with disabilities or special needs are often restricted from, or incapable of, managing money themselves; a trust provides for them (and only for them) in a structured manner.

The SNT must be designed specifically to supplement, not supplant, government benefits. Money from the trust cannot be distributed directly to the person with a disability. Instead, it must be distributed to third parties to pay for goods and services to be used by the person with a disability. The SNT may be used for various expenditures, including those Medicare and/or Medicaid will not cover, such as:

• Out-of-pocket medical and dental expenses
• Eyeglasses
• Annual independent checkups
• Transportation (including vehicle purchase)
• Vehicle maintenance
• Insurance (including payment of premiums)
• Rehabilitation
• Essential dietary needs
• Purchase of materials for a hobby or recreational activity
• Purchase of a computer or electronic equipment
• Travel or vacation
• Entertainment, like going to a movie, ballgame, concert, etc.
• Goods and services that add pleasure and quality to life, such as furniture or a television
• Athletic training, equipment, or competitions
• Personal care attendant or escort

The trust money may NOT be used for food, shelter, and clothing; it can be used for items not paid for by government assistance, such as medical expenses, dental work, home repair, or education. When establishing the trust, make sure to use a lawyer who has extensive experience with these trusts.

Some ways of funding a special needs trust include:

• Insurance
• Standard government benefits
• Saving and investments, including money in retirement funds
• Assistance and inheritance from friends and family members
• Property, such as a family home
• Military benefits

The money in the trust can be invested and earn unlimited money. The assets and earnings belong to the trust, not the child.

A revocable trust is an additional fund you can set up in conjunction with your child’s SNT. You can set up this trust while you’re living, but you are allowed to make changes to it as you see fit. The advantage of the revocable trust is that, if you set it up in conjunction with your will, your assets can be funneled into the trust automatically upon your death, avoiding the costly and time-consuming process of a will. Another advantage of this trust duo, is that other family members, like grandparents, can also use the trust as a way to offer benefits or gifts to your child.

Selecting the right person or people to manage your child’s SNT is a key step. The trustee will be responsible for spending the money, knowing the laws that govern it, and completing necessary accounting tasks, like filing taxes and balancing the account. Should you choose a family member? Maybe a sibling? Perhaps you should choose two people, or an attorney, or even a professional trust manager? Your decision will depend partly on the state in which you live, as the laws governing who is allowed to serve as trustee vary greatly from state-to-state. In some states, for example, family members are not allowed to fill this role, while in other cases a family member may be required. No matter which approach you take to establishing the appropriate trustee or trustees, you’ll want to be certain the trustee understands the responsibility he or she is accepting and is capable of completing his or her duties.