Special Needs Trust
A disabled family member can create many challenges for the family, not the least of which is paying for medical and support expenses. Many families rely on government assistance such as Social Security Disability Insurance, Supplemental Security Income, Medicare and Medicaid. These programs pay or supplement the cost of caregivers, medical care, wheelchairs and therapy, as well as food, clothing and shelter.
If the disabled individual receives a significant amount of money or other assets from an inheritance or other sources, it may cause him or her to lose eligibility to receive the benefits. This presents a challenge to parents who want to use estate planning to make sure their child is cared for and has the resources to pay for such care, even after the parents are gone.
A Special Needs Trust (also known as a Supplemental Needs Trust) is an estate planning tool that can allow the disabled family member to inherit property and money without jeopardizing eligibility for government benefits. It is a legal document that allows the disabled person to acquire and retain an unlimited amount of assets in trust for his or her benefit, without those assets being included in the disabled person's estate for the purpose of meeting eligibility requirements of the government benefits.
The Special Needs Trust protects eligibility for public benefits by supplementing, rather than replacing, the benefits that the disabled family member may be receiving or might later be eligible for. It is designed to provide additional resources for extra care above and beyond what may be provided by the government benefits to improve the quality of life of the disabled person. Examples of expenses not covered by the government assistance which the Special Needs Trust assets may pay for are: education, over-the-counter medicines, medical and dental expenses not covered by benefits, and certain recreational expenses. The Special Needs Trust will also protect the trust assets from being subject to creditors.
A Special Needs Trust may be part of a Last Will and Testament or it can be created by a trust document, such as the disabled person's parents' living trust or a separte trust specifically for that purpose. All Special Needs Trusts must be in writing and irrevocable. They must provide that the distributions to or on behalf of the disabled person are at the discretion of the Trustee. The terms of the trust must state that the Trustee is prohibited from making any distributions that would jeopardize the disabled person's eligibility for benefits, and the disabled person must be the sole beneficiary of the Special Needs Trust during his or her lifetime.
Parents or other family members may set up the Special Needs Trust as a part of their estate plan. If a separate trust is created solely to serve as the Special Needs Trust, other family members and friends may contribute gifts to the trust.
A Special Needs Trust must be drafted to meet the stringent requirements necessary to ensure that the disabled beneficiary does not lose his or her benefits. Failure to comply with these requirements could be disastrous. Therefore, you should rely on professional legal counsel in setting up the trust.