If you’re the parent, elder, or guardian of a child or adult with special needs, there are important elements to consider when creating your estate plan. Establishing a special needs trust (SNT) can provide financial support – both during your life and after your death – without your loved one losing important government benefits.
Benefits of a Special Needs Trust
A special needs trust (also called a supplemental needs trust) is a trust specifically set up for heirs with physical or mental disabilities. These individuals often receive benefits from Supplemental Security Income (SSI) and Medicare or Medicaid – but the scope of these benefits depend on a number of factors, including income.
Receiving a large sum of money, whether through inheritance or a legal settlement, can actually put these benefits at risk. This is where a special needs trust comes in. Because the beneficiary doesn’t “own” the assets in the trust, it won’t interfere with their eligibility for government benefits. Funds from a special needs trust can be used for a number of provisions, including but not limited to:
- Non-essential medical expenses
- Transportation
- School tuition
- Therapy
When creating a special needs trust, it’s important to make time for thoughtful planning. Consider your loved one’s needs, the lifestyle you hope for them, and anticipated financial needs throughout their life.
You’ll also need to choose a trustee who is trustworthy and responsible. This role can go to a relative, but it can also be managed by a professional, like an attorney or accountant. Though you’re not required to work with an attorney to create a trust, doing so can help ensure it’s legally sound and addresses all considerations.
Types of Special Needs Trusts
There are a few key terms to know when creating your SNT: grantor, trustee, and beneficiary. The grantor is the individual who creates the trust, the trustee manages the trust, and the beneficiary is the trust’s recipient. There are several types of SNTs, but the most common are third-party SNTs and first-party SNTs.
Third-party SNTs are funded by someone other than the beneficiary – for example, a parent or grandparent. The grantor decides what will happen to any remaining trust assets when the beneficiary passes away or the trust terminates. This is different from a first-party SNT, which requires government reimbursements.
With a first-party SNT, the funds actually belong to the beneficiary. These types of trusts are often established when funds are received via inheritance or a legal settlement. First-party SNTs come with a few requirements. The beneficiary must be under 65 when it’s created, it must be irrevocable, and when the trust is terminated, reimbursement must go to Medicaid.
Considerations Beyond the SNT
If you’re the parent or guardian of an individual with special needs, there are other estate planning essentials to consider in addition to an SNT. For example, in your will you can establish a guardian for your child after you pass away. And creating a power of attorney can help ensure your child’s financial expenses are managed, should you become incapacitated.
It’s also critically important to keep your child’s records organized and secure. This includes information on medications, allergies, and contact info for healthcare specialists. In the wake of your death, your personal representative needs to be able to locate this information in a timely way, so your loved one receives the care they need.
A special needs trust can help ensure your loved one sustains a high quality of life while keeping their government benefits, as well. Connect with our team to explore your SNT options.
