Special Needs Trusts Overview

Many people who are born with mental or physical disabilities, or develop them later in life, are eligible to receive assistance from the government through programs such as Medicaid, Supplemental Security Income (SSI), subsidized housing, and others. For the family members of a special needs individual, careful estate planning is essential to ensure that the special needs beneficiary remains eligible to receive these government benefits.

To qualify for most government programs, there are strict limits on the special needs individual’s income and assets. Inherited assets are counted when looking at what assets are available to a special needs beneficiary. Therefore, the family members of a special needs individual should consider passing wealth to that person through a trust.

How Does a Special Needs Trust Work?

A special needs trust is one in which a trustee holds assets for the benefit of the special needs individual. The trustee has complete discretion to make distributions to or for the benefit of the special needs beneficiary. The goal is to ensure that, while the assets are there for the beneficiary, the trustee is not legally obligated to distribute money to the special needs beneficiary. Therefore, the assets in the special needs trust cannot be counted when determining whether the beneficiary qualifies for government programs.

Role of the Trustee

Special needs trusts generally provide that the trustee is authorized to supplement the needs of the beneficiary. For example, if the beneficiary is living in an assisted living facility, the trustee could pay for cable television, barber or salon services, and entertainment. The trust assets are used to enhance the quality of life for the special needs individual and pay those expenses not covered by government benefits.

Trust Distributions

A common practice among estate planning attorneys is to include provisions in every trust to address special needs beneficiaries. You never know when a family member could develop an illness or become disabled, so the safest way to draft a trust is to include language that allows a trustee to hold assets in a discretionary trust for the benefit of the special needs beneficiary. If distributions are discretionary, the trustee is not legally obligated to make the distributions to the beneficiary, and thus the assets of the trust will not be counted in determining whether the beneficiary qualifies for a government program.

Consult an Estate Planning Attorney

If you think you or a family member may need a special needs trust, you should consult with an attorney who has experience preparing special needs trusts. There are many pitfalls to avoid in drafting a trust, so an experienced attorney is best.

Case Studies: Special Needs Trusts in Estate Planning

Case Study 1: The Anderson Family

The Anderson family has a son with severe autism who requires extensive care and support. To ensure their son’s well-being, the Andersons decided to establish a special needs trust.

By doing so, they can pass on their wealth to their son while ensuring he remains eligible for government benefits. The trust’s trustee has the authority to make distributions for the benefit of their son, such as paying for specialized therapies, medical treatments, and other expenses not covered by government programs.

Case Study 2: The Ramirez Siblings

The Ramirez siblings have a brother who suffered a traumatic brain injury in a car accident. As a result, their brother requires ongoing medical care and assistance.

To protect their brother’s eligibility for government programs, the Ramirez siblings decided to establish a special needs trust. This trust allows the trustee to supplement their brother’s needs and enhance his quality of life by covering expenses like housing modifications, transportation services, and other non-covered medical expenses.

Case Study 3: The Thompson Family

The Thompson family has a daughter with a developmental disability. They want to ensure their daughter’s financial security while maintaining her eligibility for government assistance programs.

They consulted with an experienced estate planning attorney to draft a special needs trust specifically tailored to their daughter’s needs. The trust includes discretionary provisions, allowing the trustee to distribute funds as necessary, without jeopardizing their daughter’s eligibility for government benefits.