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All You Need to Know About Special Needs Trust

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People with special needs deserve all the love and care they can get. Many families with special needs people try their best to ensure they get all the care, and they can do that by creating a special needs trust. A special needs trust allows special needs individuals to get financial support when their benefactors are no longer alive.

“Individuals with loved ones who have special needs can set up a special needs trust as a form of financial security,” says attorney Morton L. Price. “With such a trust in place, you will not have to worry about what will happen to your loved one when you pass away.”

Creating a special needs trust can help ensure the quality of life of your loved one with special needs when you are dead, without ruining their chances of qualifying for benefits from the government. Individuals who want to set up this trust should do so with the help of a meticulous attorney who is familiar with drafting such documents.

What is a Special Need Trust?

A special needs trust helps you set aside money to support a loved one with a disability financially. The special needs trust makes it possible for the beneficiary to still qualify for other government benefits such as Medicaid and Security Supplemental Income. These government benefits require recipients to be within a specified income level.

Special needs trusts also help protect the beneficiary from financial abuse as it specifies how the money will be released to them. With this trust in place, the individual who set it up, also known as the grantor, can rest assured that the trust money will be wisely spent.

The special needs trust fund can be used to cover other needs that are not provided for by government benefits like dental care, eye checks, and recreation. As money in a trust fund is not directly controlled by the special needs person, it is therefore not considered an income source, making it possible for the person to benefit from other disability benefits.

There are restrictions on how special needs trust funds can be used. Most trusts have specified instructions outlining how the money will be released to the special needs person and for what purpose.

Parties in a Special Need Trust

Different parties are involved in a special needs trust. They include:

  • The grantor: this is the person that sets up the trust in the name of the special needs person. The grantor can be a family member or a friend but is not limited to these two parties. In some cases, the beneficiary can also be the grantor
  • The beneficiary: this is the special needs person in whose name the trust is set up. The beneficiary has to be a person suffering from some form of disability
  • Manager: this is the individual who works with the beneficiary and their families
  • Trustee: this is the individual in charge of the beneficiary’s money. In many cases, the trustee is usually a bank
  • Primary Representative: this is an individual selected by the grantor and charged with the responsibility of helping the beneficiary use the money put in their special needs trust. The primary representative will most times have to fill and submit sending requests whenever the need arises

Types of Special Needs Trusts

While setting up a special needs trust, it is crucial to know the types of trusts, which include first party, third party, and pooled trust.

#1. First Party Trust

The first-party trust is a special needs trust created and funded with the beneficiary’s assets. The first-party trust makes it possible for the beneficiary to qualify for government benefits as the assets in the trust are not counted as income.

The first-party trust is beneficial in the following ways:

  • It makes it possible for a disabled person to still qualify for government benefits such as Medicaid, SSI, and subsidized housing as well
  • It acts as a supplemental income to cover needs that may not be taken care of by government benefits, making it possible for the disabled person to have access to the best care possible
  • A trusted representative can be appointed who would help to ensure that the funds are utilized for the benefit of the beneficiary

#2. Third-party Trust

This trust is created by a disabled person’s parents or loved one. However, it is not created in the special needs person’s name but rather in someone else’s. One of the common ways of funding this type of special needs trust is from the grantor’s estate.

The money in the trust is supervised by a qualified trustee who could be a family member, a friend, a bank, or an attorney. To avoid conflict of interest, it is best to name a neutral person who is not the ultimate beneficiary as a trustee. Additionally, funds in this type of trust are designated for improving the disabled person’s quality of living and not for housing or feeding.

Monetary gifts and bequests from other parties to the special needs person can also be made into the trust. This would help ensure such gifts do not disqualify the individual from other government benefits.

#3. Pooled Trust

As the name implies, this trust is funded with money from different individuals, usually the disabled’s family and friends. This type of trust is the least expensive to administer. Many people prefer to appoint a trusted family member as trustee rather than an organization.

A pooled trust can also have a first-party account funded from the pooled trust. At the death of the beneficiary, whatever is left of the funds in the first-party account is usually used in reimbursing the State Department of Healthcare Services. At the same time, a percentage is designated to a nonprofit.

Steps Required in Setting Up a Special Needs Trust

The steps required in creating a special needs trust are straightforward but would still require you to walk with a legal expert to avoid making mistakes. However, the following steps will help you get started on the right footing:

#1. Decide on the Trust Amount

Setting up a trust will require you to decide how much you would need to set aside to support a disabled loved one financially. The amount can be determined by the level of care the special needs person requires based on the disability they are suffering.

Also, consider the length of time you would want the funds to last and their current age, as this would help you put aside sufficient funds to provide the best quality of care. You may need to discuss with their doctor, a lawyer, and sometimes a financial planner to determine the right amount.

#2. Decide on the Type of Trust to Set Up

Different types of special needs trusts are available based on the beneficiary’s needs. You may decide to create a third-party, first-party, or pooled fund. Before making a conclusion on which one to set up, it is best to discuss with your attorney, who would explain the benefits of each and make recommendations based on their expertise.

Bottom Line

People often worry about how their disabled loved ones will cope when they die. However, a special needs trust allows you to make financial provisions that would guarantee they enjoy the best quality of life even when you are not around. To set up a special needs trust, it is ideal to hire the services of a hardworking attorney.

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