If you have a loved one with special needs, you may have heard about special needs trust. This powerful legal tool ensures that your hard-earned assets continue to support your loved one after you’re gone without jeopardizing their access to needed benefits. Here, we explain how this works, who might benefit from having one, the different types of special needs trusts, and how to go about setting one up.
What is a Special Needs Trust?
A special needs trust, often abbreviated as SNT, is a legal arrangement designed to manage assets and funds for the benefit of an individual with special needs. These trusts are tailored to ensure that the individual can continue to receive government benefits and assistance while also enjoying the advantages of financial support beyond what public programs provide. The government programs provide the basics, and the trust can pay for extras – it is often said that these trusts are designed to supplement but not supplant the benefits available from governmental programs.
Who Might Benefit from a Special Needs Trust?
SNT’s primarily benefit individuals who have physical or mental disabilities and who rely on government benefits like Supplemental Security Income (SSI) or Medicaid. These government programs often have strict income and asset limits, and so a person receiving a significant inheritance or financial gift risks losing eligibility. A SNT’s intervenes to ensure this does not happen, while at once making it possible for parents or guardians to pass on wealth when they die.
Types of Special Needs Trusts
There are two primary types of SNT’s and each serves unique purposes:
- First-Party Special Needs Trust: Also known as a “self-settled” trust, this type is funded with the beneficiary’s own assets. It’s typically used when an individual with special needs receives a legal settlement, inheritance, or other assets in their name. The trust helps protect these funds while preserving their eligibility for government benefits.
- Third-Party Special Needs Trust: This trust (also often referred to as a “Supplemental Needs Trust”) is established by someone other than the beneficiary, often a family member. It allows family members to leave assets to the individual with special needs without affecting their eligibility for government benefits.
How to Set Up a Special Needs Trust
Setting up a special needs trust involves several steps and requires guidance from an experienced estate planning attorney.
- Choose a Trustee: Selecting a trustee is crucial. This person or entity will manage the trust and make distributions according to the trust’s terms. It is wise to choose someone with financial expertise and a deep understanding of the beneficiary’s needs. The manner in which funds are managed and dispersed is critical and reporting may be required making the choice of a corporate or professional trustee that can easily keep up with the administrative requirements a good option.
- Create the Trust Document: The trust document outlines the trust’s terms and conditions, including how funds should be used for the beneficiary’s benefit. Consulting with an experienced attorney who specializes in special needs planning is essential to draft a legally sound document.
- Fund the Trust: Depending on the type of SNT’s, you will either fund it with the beneficiary’s own assets (first-party trust) or with assets from someone else, like a family member (third-party trust).
- Maintain Compliance: It’s crucial to adhere to all federal and state laws governing SNT’s. This includes ensuring that trust distributions are for the beneficiary’s supplemental needs and do not interfere with their eligibility for government assistance.
- Appoint a Power of Attorney: It’s a good practice to also consider appointing a power of attorney, who can make legal and financial decisions on behalf of the individual with special needs if they are unable to do so themselves.
- Regular Review and Updates: Circumstances can change over time, so it’s essential to regularly review and update the SNT’s to ensure it continues to meet the beneficiary’s evolving needs and legal requirements.
A special needs trust can be a lifeline for individuals with special needs and their families. By safeguarding their access to government benefits while providing additional financial support, these trusts offer peace of mind and improved quality of life. If you are a parent or guardian to a person with special needs and would like to learn more, do not hesitate to reach out to the Estate Planning Law Group of Georgia either by calling us at (770) 822-2723 or filling out the contact form on our website.