The Special Needs Trust: An Important Part of a Comprehensive Special Needs Financial Plan

 April 23, 2015
Posted by M&LAdmin4

Thursday, April 23rd 2015

At M&L Special Needs Planning, LLC, we are both professionals in the special needs community and parents of children with disability. We have been the advice-givers as well as the decision makers; we have watched parents struggle with various challenges that arise from having children with special needs and we can empathize, because we too have struggled.

If we were to take one piece of advice (speaking from both sides of the special needs journey) and give it to new parents of children with special needs, it would be this: it is never, ever too early to start financially planning for the future of your child with disability. The earlier you begin to plan, the more likely you are to achieve your goals and secure a stable and financially secure future for your family.

In light of this advice, we have decided to use today’s post to discuss a very important special needs financial planning tool – the Special Needs Trust (SNT). Please join us for a discussion of the SNT and how it can help families with special needs save for and meet their financial goals.

What is the Special Needs Trust?

Quite simply, the Special Needs Trust (SNT) is a legal document designed for the financial protection of an individual with disability. The SNT, which is established by placing funds and other assets under the control of the trustee, is one of two legal ways for an individual with special needs to save money without breeching the current SSI/SSDI resource limit ($2000) that would render the individual ineligible for federal and state benefits. Note: For a discussion of these resource limits for government benefits, please click here.

The SNT can be funded in a number of ways, either during the lifetime of the grantor or upon their death, and allows family members to gift assets and leave inheritances or life insurances to a person with special needs without disqualifying him or her from government benefits. It should be noted that the funds in the SNT are meant to supplement, not supplant, government benefits.

It is very important to ensure that the SNT has been established correctly, especially in light of the recent release of regulations governing trust resource determinations. SNT’s that have been established without regard to the eligibility laws may disqualify a person with disabilities from government benefits, specifically Supplemental Security Income (SSI) and Medicaid. When creating a SNT, always be sure to consult with an attorney who has experience in the field. For more information, or to find a special needs attorney, please contact us.

What are the three types of trusts?

There are three types of Special Needs Trusts, each with their own pros and cons – First Party; Pay-Back; (d)(4)(A) Trust, the Third Party-Supplemental trust, and the Pooled Trust.

The first party-pay back (d)(4)(e) trust is a trust that must be completed by someone else, i.e. a parent, grandparent, or the court, but NOT the person with special needs (beneficiary.) This is despite the fact that it is the assets of the beneficiary that will fund the trust. While the beneficiary is living, the funds in the trust are used for his or her benefit. When he/she dies, any assets remaining in the trust are used to reimburse the government for the cost of his/her medical care, i.e. Medicaid. That is what is referred to by ‘payback’ provision. For more information on this type of SNT, please click here.

A good example of funds which would go into first party-pay back SNT are funds won in a settlement due to birth issues. The owner of these funds is the individual with disabilities. Some settlements are millions of dollars. This money goes into a first party-pay back trust. If there is money left over after the individual with disabilities dies, the state can claim money in the trust that was paid towards Medicaid.

The Third Party-Supplemental Trust is perhaps the most common SNT; it is also created by someone other than the person with special needs, for the benefit of that individual with disabilities. This trust can hold any kind of asset belonging to the donor, including a house, stocks & bonds, and other types of investments. It can also be the beneficiary of a life insurance policy. As the funds in this type of SNT were never in the beneficiary’s name, if that beneficiary passes on then any funds remaining in the SNT can pass on to other family members, or charity, without having to reimburse the government. Click here for more info on the third-party supplemental SNT.

The Pooled Trust is a little different from the other two; to being, the trust money is held and administered by a non-profit 501c3, and it also contains a “pay-back” provision. This type of SNT is usually used when there is not enough money for a stand-along SNT; therefore the non-profit establishes a trust that allows beneficiaries to “pool” their resources for investment purposes. Each beneficiary’s account is maintained separately for that individual’s needs. As with the first party trust, when the beneficiary dies the funds remaining in the account reimburse the government for the beneficiary’s public benefits received. Often, a portion goes to the non-profit for management before the remainder of the funds pass to the beneficiary’s heirs. For more information on the pooled trust, please click here.

How Can I access More Information?

Thank you for taking the time to visit our blog today! We hope that we have provided with you valuable information regarding Special Needs Trusts, and have inspired you to being planning (immediately) for the financial future of your child with disability! For more information on special needs trusts please click here to access our blog archive on the topic, or check out our resource page.

If you would like to begin planning for the future of your family with special needs, please let us know! Our Comprehensive Special Needs Financial Life Plan is designed specifically for the family with special needs, and takes into account planning for two generations, you and your children, as well as the typical life goals and the goals for the individual with special needs. For additional information on this service, or to make an appointment, please let us know.

Thanks again for visiting our blog today – don’t forget to drop by next week for an update on our housing non-profit, Integrated Living Opportunities. See you then!

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