Special Needs Trusts

One way of providing for your child with special needs is through a Special Needs Trust (SNT). Also called a “supplemental care trust,” an SNT is a legal way to make sure that the assets you leave to your child are available when he or she needs them. An SNT gives your child use of funds, while the assets are handled responsibly. This page explains SNTs: their benefits, proper uses, and how you can fund an SNT for your child. It also goes over revocable trusts, which can be set up along with your child’s SNT.

The services and funds through government programs, such as Medicaid, are helpful for medical and long-term care, but the income from these programs is quite fixed, often leaving many unmet needs. If you leave money to your child in a traditional will, it is looked at as an asset, disqualifying your child from any public benefits if the amount is too high. All the money in the will must be used before your child’s eligibility will be restored. This would leave only those funds from government benefits for your child’s long-term care and other expenses.

To be sure that the money you leave for your child can be used for their needs, and that public benefits such as Medicaid will continue, the assets must be placed in the SNT and set up the right way. While the government states that a person with a disability cannot have a trust and still have public benefits, the SNT is okay because the trust does not belong to the person with a disability. He or she is named as a beneficiary of the trust and is mainly the only one who uses the assets.

It may be tempting to leave money for your child with special needs to one of your other children. However, a trust will protect all of your children from hard money situations, which can sometimes lead to problems between family members. People with disabilities or special needs are often are not able to manage money themselves; a trust provides for them (and only for them) in a structured way.

The SNT must be designed clearly to add to, not replace, government benefits. Money from the trust cannot be given to the person with a disability. Instead, it must be transferred to third parties to pay for the needs of the person with a disability. The SNT may be used for expenses such as those Medicare and/or Medicaid will not cover:

• Out-of-pocket medical and dental expenses
• Eyeglasses
• Yearly checkups
• Transportation (public or private)
• Car maintenance
• Insurance (also payment of premiums)
• Rehabilitation/therapy
• Extra dietary needs
• Materials for a hobby or recreation
• Computer or electronic devices
• Travel or vacation
• Entertainment, like going to a movie, ball game, concert, etc.
• Items that add joy and quality to life, such as furniture or a TV
• Sports training, equipment, or competitions
• Personal care aide or escort

The trust money can be used for items not paid for by government assistance, such as health care costs, dental work, home repair, or schooling. It may NOT be used for food, shelter, and clothing. When setting up the trust, make sure to use a lawyer who has experience with these type of trusts and is familiar with how the money can be used.

Some ways of funding a special needs trust are:

• Insurance
• Savings and investments, such as money in retirement funds
• Support and gifts from friends and family members
• Property, such as a family home
• Military benefits

The money in the trust can be invested and earn money without limits. The assets and earnings belong to the trust, not the child.

A revocable trust is an added fund you can set up along 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. A revocable trust is of great value if you set it up with your will. Your assets can be funneled into the trust automatically upon your death, without the costly and time-consuming process of a will. Another advantage of this is that other family members, like grandparents, can also use the trust to gift money to your child.

Choosing the right person or people to handle your child’s SNT is a key step. The trustee will be in charge of spending the money, knowing the laws that govern it, and completing all tasks, like filing taxes and balancing the account. The trustee may be:

• A family member, such as a sister or brother
• A lawyer
• A trust manager

It may also be possible to choose two people for this role. Your choices will depend partly on the state in which you live, as the laws over who is allowed to serve as trustee differ greatly from state-to-state. In some states, family members are not allowed to fill this role, while in other cases a family member may be required. No matter how you name the trustee or trustees, you’ll want to be certain the trustee understands the job he or she is taking on and is able to complete his or her duties.