Understanding Special Needs Trusts: Securing Your Loved One's Future

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Rebecca L. Nichols, elder law & estate planning solicitor, brings over a decade of expertise in estate planning to her practice.
Last updated on: March 20, 2024
Secure your loved one's future with Special Needs Trusts. Learn how these trusts protect eligibility for benefits while providing financial support.
Understanding Special Needs Trusts: Securing Your Loved One's Future

For families caring for individuals with disabilities, navigating the complexities of financial planning can be particularly challenging. Fortunately, special needs trusts offer a valuable tool to ensure the well-being of your loved one while preserving their eligibility for essential government benefits. 

Special Needs Trust, What are they?

A special needs trust (SNT) is a legal arrangement that holds assets for the benefit of a person with a disability. These programs have strict asset and income limitations, so owning assets directly could disqualify the beneficiary from receiving crucial support.

Key figures:

  1. Over 12 million Americans live with a disability, according to the Centers for Disease Control and Prevention (CDC). This highlights the significant need for tools like SNTs to support this population.
  2. Nearly 70% of individuals with disabilities rely on at least one form of public assistance, highlighting the importance of protecting their eligibility for these programs.

A special needs trust (SNT) also known as supplementary needs trust, is a legal arrangement similar to a traditional trust but specifically designed to hold assets for the benefit of a person with a disability.

In simpler terms, A special needs trust helps people with disabilities get extra funds while keeping their government benefits.

It acts as a separate legal entity, distinct from the individual's finances. 

It allows the individual to receive supplemental financial support without jeopardizing their eligibility for programs like Medicaid and Supplemental Security Income (SSI). 

Owning assets directly could disqualify the individual from receiving these critical programs. 

Special Needs Trusts help an individual with disabilities to safeguard their assets from supplemental government benefits. Hence SNT allows the individual to access supplemental financial support for various needs without jeopardizing their eligibility for benefits.

It is designed to supplement, not replace, the assistance provided by programs such as Medicaid and Supplemental Security Income (SSI). 

The trust is managed by a trustee responsible for using the funds for the beneficiary's needs while adhering to the guidelines outlined in the trust document.

The Purpose of a Special Needs Trust

An SNT serves several key purposes:

  1. Provides Supplemental Support: The trust can fund various expenses not covered by government benefits. This includes education, specialized therapies, assistive technology, improvements to living situations, or even leisure activities that can enhance the individual's quality of life.
  2. Preserve Government Benefits: Since the assets in the trust are legally separate from the beneficiary's holdings, they don't count towards the asset limits for programs like Medicaid and SSI. This ensures continued access to these essential services, which often provide crucial medical care, housing assistance, and other vital support.
  3. Offers Long-term Security: An SNT can provide financial security for the individual with a disability throughout their lifetime. 

Even if the primary caregiver is no longer able to do so, Supplementary Needs Trust ensures the individual's needs continue to be met even during unforeseen changes. 

This may be due to several reasons such as age, illness, or other circumstances. The unforeseen reasons may be such as age, illness, or other circumstances of the primary caregiver.

The Multifaceted Benefits of Special Needs Trusts

Special needs trusts (SNTs) offer a vital resource for individuals with disabilities and their families, addressing a range of critical needs:

  1. Enhanced Quality of Life: Beyond essential government benefits, SNTs can fund meaningful life experiences not typically covered. This includes specialized education, innovative therapies, assistive technologies, and even leisure activities like travel or hobbies.
  2. Future-Proofing Independence: As individuals with disabilities transition to adulthood or navigate future changes, SNTs can provide financial autonomy. Funds can be used for independent living arrangements, transportation assistance, or personal care services, promoting greater self-sufficiency.
  3. Educational Opportunities: SNTs can bridge the gap in educational funding, supporting things like specialized tutors, technology for learning, or vocational training. This empowers individuals with disabilities to pursue their educational goals and reach their full potential.
  4. Peace of Mind for Families: Knowing the individual's needs will be met in the future brings immense peace of mind to families. SNTs offer a safety net against unforeseen circumstances, ensuring continued support even if primary caregivers face challenges.
  5. Building a Legacy: By contributing to an SNT, families can leave a lasting legacy for their loved ones with disabilities. This ensures their needs are met not just in the present, but also throughout their lifetime, fostering a secure and fulfilling future.

Types of Special Needs Trusts

Special needs trusts come in different forms, each serving distinct purposes. Choosing the right one depends on the individual's specific situation and resources. 

Here's a brief overview of the most common types:

  1. First-Party SNT (Self-Settled Trust): This type is funded with assets belonging to the individual with a disability. It typically involves legal assistance due to potential limitations and complexities surrounding asset ownership and potential impact on government benefits.
  2. Third-Party SNT (Supplemental Needs Trust): This is the most common type, funded by someone other than the beneficiary, such as parents, grandparents, or friends. This option offers flexibility for individuals with no personal assets as it allows contributions from external sources without jeopardizing their eligibility for government benefits.
  3. Pooled Trust: This unique option involves combining smaller individual SNTs into a single, professionally managed trust. This offers several advantages. Firstly, it benefits from economies of scale, meaning investment and administrative costs are shared among all participants, making it suitable for individuals with limited resources. Secondly, pooled trusts are managed by experienced professionals, ensuring expert oversight and investment strategies.

Choosing the right SNT type requires careful consideration. Consulting with a special needs planning attorney is crucial to understanding the legal and tax implications of each option and ensuring the chosen trust structure aligns with your specific needs and goals. 

They can guide you through the establishment process and ensure the trust is properly set up to achieve its intended purpose while protecting the beneficiary's eligibility for government benefits.

Talk To A Special Needs Trusts Attorney Today

Special needs trusts are a powerful tool for families planning for the future of a loved one with a disability. By understanding the purpose and different types of SNTs, you can make informed decisions about securing their financial well-being while ensuring they continue to receive essential government benefits. 

Remember, consulting with a qualified special needs trust attorney is essential to ensure the trust is properly established and meets the specific needs of your loved one.

Remember: By understanding the key features and benefits of special needs trusts, you can make informed decisions about securing the financial well-being and future of your loved one with a disability. Consulting with a qualified professional is essential to ensure the trust is tailored to their specific needs and complies with all legal and tax regulations.

Read more:

  1. Things you should not pay from a special needs trust.
  2. Need a Special Needs Attorney, Learn how they can help you.