Rosemary Conley: Special Needs Trusts

We have received many questions about special needs trusts, so we’ve put together some of the questions and answers to help you.

What are special needs trusts?

A trust is created when property (real estate, finances, tangible items) is managed by a person for another person’s benefit. The person managing the property is called the “trustee.” The person whose benefit it is for is called the “beneficiary”. The trust lasts as long as it is needed. This usually means the trust will go on until the beneficiary’s death or until the funds are expunged.

Special needs trusts are made specifically for the benefit of those with physical and/or mental disabilities, including those with mental disabilities who lack the capacity to manage their own finances. The trust is created with the specific needs, lifestyle, and future of the beneficiary in mind. Often times these special needs trusts are used to ensure that the beneficiaries don’t lose government benefits they are receiving. The trustees of special needs trusts can be family members or, if an appropriate and trustworthy family member is unavailable, a third party will be appointed by the court. Choosing the right trustee must be done very carefully, especially for special needs trusts that are used for the benefit of a younger person.

What are the benefits of special needs trusts?

Often times, people with disabilities qualify for government assistance such as Supplemental Security Income (SSI), Medicaid, vocational rehabilitation, and subsidized housing. Many people make the mistake of leaving assets to their disabled loved ones through a will. This is problematic because acquiring assets, such as a lump sum of money, can disqualify your loved one for these types of government assistance programs.

By setting up a special needs trust, instead of solely using a will, you can avoid these issues. Because the trustee has total control over the management of the funds, and the beneficiary does not, government program administrators, like the ones from SSI and Medicaid, ignore the trust assets when considering eligibility.

Special needs trusts can also be used to set up inheritance funds or proceeds from a settlement on behalf of the disabled person. This way, if your loved one is the plaintiff in a successful lawsuit or inherits assets, those funds will go into the trust and will not disqualify him or her from receiving those government benefits. On the flip side, if the beneficiary is ever sued, the funds in his or her special needs trust cannot be touched–they are not subject to any judgment.

What if we are not concerned with government benefits?

The beauty of special needs trusts is that they address the specific needs of the disabled person whereas other types of trusts do not. Even if a family is not interested in government benefits, they should still consider a special needs trust to address those specific needs. Furthermore, you never know what the future holds. There is no sense in sacrificing government services that could be beneficial for your disabled loved one in the future.

How can the beneficiary access the special needs trust?

Having the trustee directly give your loved one money could disqualify him or her for government benefits. Instead, the trustee can use the trust assets to purchase necessities for your loved one. The trustee can buy services and products, like personal care attendants, vacations, home furnishings, medical and dental expenses, education, vehicles, physical therapy, and even recreation.

Should I consider a pooled trust?

A pooled trust is a type of special needs trust that is managed by nonprofit organizations. These nonprofit organizations pool the money from multiple families and invest it. Each beneficiary still has his or her own separate account and his or her own trustee, chosen by the nonprofit organization. These appointed trustees even purchase things for the beneficiary, just like a trustee appointed by the family or the court would. If you are having a hard time coming up with someone who would be a good fit as a trustee, a pooled trust may be something to consider. Check your local nonprofit organizations to see what is available in your area.

How should special needs trusts be worded?

Most importantly, a special needs trust must state that the trust is intended to provide “supplemental and extra care” beyond that which the government provides.
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?

Anyone can create a special needs trust, as long as the required language is included. There are plenty of good do-it-yourself books you can buy that will walk you through how to properly create a special needs trust. However, there may be times when your circumstances are a bit more complicated. For instance, if you are setting up a trust with money the beneficiary received from a settlement. In these types of cases, consulting an attorney is a good idea, because complicated and state-specific rules then apply. The best thing to do is to let a lawyer take care of your special needs trust for you. There are so many different requirements and details that experienced probate attorneys will be able to hash out for you.

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