Special Needs Trust FAQ

What are special needs trusts?

A trust is a trust created when property is managed by one individual for the benefit of another.  The person who manages the trust is the trustee and the ones whose benefit the trust is for is called the beneficiary. The trust remains until the beneficiary’s death, the depletion of the properties in it, or if it is otherwise specified in the trust document.

The special needs trust is a trust made for the benefit of beneficiaries who have special needs such as those with mental or physical disabilities. Since these people do not have the capacity to manage their own finances, a trust is put in place for their benefit at present and in the future. A special needs trust may be established for those who receive benefits from the government. The trustees of the special needs trust may be a family member or a person designated by the court. Just like other trusts, the choice of trustee is very crucial.

What are the benefits of special needs trusts?

People with disabilities usually qualify for government assistance such as Medicaid, Supplemental Security Income (SSI), subsidized housing, and vocational rehabilitation. Leaving assets to a loved one through a will may disqualify them to receive benefits or any type of assistance from the government. This can be avoided by setting up a trust instead of directly transferring properties or assets to a special needs person. Government program administrators often ignore trust funds when assessing the eligibility of a special needs person because it is the trustee who handles the funds and not the beneficiary.

The special needs trust may also be created for proceeds from a settlement in behalf of the disabled person. Again, since they cannot handle their own finances, any money they are entitled to receive could better be managed if put in a trust. Such income may also disqualify the special needs person from government assistance, so putting them in a trust would avoid that. At the same time, if the special needs person is sued, the funds from the trust cannot be touched.

What if we are not concerned with government benefits?

Unlike other trusts, the special needs trust is specifically designed for the needs of disabled persons. That’s why it is still worth taking into consideration even if your family member may not be needing government benefits. Nobody knows what could happen in the future so it is important to have something setup for your loved one’s benefit.

How can the beneficiary access the special needs trust?

The trustee may purchase the special person’s needs instead of directly giving money to the latter which may disqualify them to receive government benefits. The trustee can take care of the disabled person’s needs and purchase products and services needed for the beneficiary’s well-being.

Should I consider a pooled trust?

A pooled trust may be something to consider especially if you cannot find a specific person to designate as a trustee. Each beneficiary to a pooled trust still has his or her own separate account and his or her own trustee chosen by the nonprofit organization. The appointed trustees may even buy and pay for things for the beneficiary, just like a trustee appointed by the family or the court would. Contact a local charity for more information.

How should special needs trusts be worded?

The special needs trust must specifically state that the trust is for the purpose of providing “supplemental and extra care” beyond what the government gives.

State that it is not intended as a basic support trust.

Do not include a “Crummey Clause,” an estate tax provision.

Reference the Social Security Operations Manual and this specific parts in the manual that authorize the creation of the special needs trust.

Include the required language regarding payback to Medicaid.

Explain the exception to the Omnibus Budget and Reconciliation Act.

Include a copy of the relevant provisions form the United States Code.

Do I need a lawyer to set up special needs trusts?

It is fairly simple to create a special needs trust. There are a lot of resources available such as books and websites that may help you in setting up the trust yourself. But if there are special circumstances involved, then the process may be more complex than usual, such as when the beneficiary is the recipient of a settlement. In such cases, it is advisable to consult with an attorney who could help you setup the trust, or set it up for you. An experienced probate attorney could give you more information and assistance in dealing with the complicated requirements and details that may be involved.

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