A Special Needs Trust: How Does It Work?

Oct 20, 2023 | Estate Planning

If you find yourself in the role of a caregiver for a family member with special needs and have conducted research into estate planning, it is likely that you have come across information about a particular type of trust designed specifically for their benefit. These trusts, known as special needs trusts, can offer significant advantages when it comes to guaranteeing the well-being of those who depend on your care even after your passing. 

In this article, we will delve into the concept of special needs trusts and explore their mechanics so that you can assess whether they could potentially provide valuable support for both you and your loved ones.

Do I Need A SNT?

A trust designed specifically for individuals with special needs is also known as a supplemental needs trust (SNT). This type of trust caters to those facing physical disabilities, mental impairments, or other functional requirements. Many of these individuals rely on government assistance programs like Medicare, Medicaid, or SSI for their financial support. To remain eligible for such benefits, it is crucial that their monthly income falls within the asset limit. The primary purpose of an SNT is to enable these individuals to save money or receive a substantial inheritance while still adhering to the asset limit criteria.

If you are the parent or guardian responsible for someone unable to financially support themselves due to a disability or medical condition, establishing an SNT should be seriously considered. Although government benefits are necessary and provide some level of financial aid, they do not guarantee coverage for all expenses. If your goal is to ensure long-term care and security for your loved one without jeopardizing their eligibility for benefits after you pass away, then establishing an SNT becomes even more critical! 

How Does An SNT Work?

The primary purpose of a special needs trust is to enhance the beneficiary’s overall quality of life. It should not be utilized as the main source for essential expenditures like food, housing, transportation, or medical care since these are typically covered by government assistance programs. However, if there are any gaps in coverage provided by such programs, an SNT can be employed to bridge those financial shortfalls. Additionally, this type of trust should not be used to pay for lavish gifts to others or charitable contributions. Instead, special needs trusts commonly cover expenses such as:

  • Service animals and other pets
  • Housekeeping or cooking assistance
  • Car insurance
  • Electronics such as TVs and computers
  • Trips
  • Entertainment such as movies or books
  • Hobbies
  • And more.

Similar to other types of trusts, when someone creates a trust and considers the needs of the beneficiary, they will designate an individual or organization to manage it. This person could be a family member, friend, knowledgeable professional in the relevant field, or even a non-profit entity. The trustee’s main duty is to monitor the funds held within the trust, evaluate them, and approve or deny requests made by beneficiaries while strictly adhering to its rules. Working alongside an estate planning attorney can simplify this process and alleviate any concerns that may arise from deciphering the intricate legal terminology involved in establishing a trust.

Types Of Special Needs Trusts

There are three types of special needs trusts. Your estate planning attorney can help you select which type would be best for you based on the specific needs of the beneficiary and your overall goals. 

  1. Third-Party Special Needs Trust: This type of SNT is similar to the traditional trust. The assets within the trust are funded by an individual who is not the beneficiary, and it can be established as revocable or irrevocable, stand-alone or testamentary trust.
  1. First-Party Special Needs Trusts: This is a type of SNT that the beneficiary funds in order to enable them to accumulate assets without jeopardizing their eligibility for government assistance, though they are not always the ones who create them. A family member can establish first-party SNTs using the beneficiary’s assets. It’s important to note, though, the Medicaid repayment provision that is required of a first-party SNT. This stipulates that the assets remaining in the trust after the beneficiary passes away will be used to repay Medicaid. If there are any assets left after repayment, they will be distributed to contingent beneficiaries. 
  1. Pooled Special Needs Trust: Community trusts are another name for these SNTs. They get their money from many families, donors, and people in the community. Usually, non-profit groups are in charge of them, and family members are named as different recipients with their own accounts.

How Can An Estate Planning Attorney Help With Special Needs Planning?

If you’re considering establishing a Special Needs Trust (SNT), seeking the guidance of an estate planning attorney can prove invaluable. While the process of setting up this trust is similar to other types of trust funds, it’s important to note that even those are highly intricate. By enlisting the services of an experienced estate planning lawyer or wills and trusts lawyer, you can simplify the process and gain peace of mind knowing your loved one will be properly cared for. 

Accuracy and honesty are crucial when providing information about your loved one’s current income, expenses, and withdrawal needs from the trust. Once you’ve shared these details with your attorney, they can create a customized trust based on your specifications, assist in selecting a trustee, and address any concerns or queries that may arise during the journey.

ProvenLaw Will Take Care Of Your Loved Ones After You’re Gone

As someone who currently cares for a family member with special needs, you are likely familiar with the circumstances discussed in this article. Your thoughts may have turned to worrying about their future well-being when you are not around. You can relax knowing our compassionate ProvenLaw firm is committed to addressing your unique concerns and meeting the needs of your loved one! Contact us today to schedule a free consultation, during which we will provide detailed information on the various types of services we can provide.

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