Special Needs Trusts
Unlike an inheritance, a special needs trust allows the beneficiary to receive additional funds without being disqualified from Supplemental Security Income (SSI), Medicaid or other public benefits.
What Is a Special Needs Trust?
A special needs trust, sometimes also called a supplemental needs trust, holds title to property for the benefit of an individual under the age of 65 who has a disability. The trust is managed by a trustee, who has the discretion to make distributions on behalf of the beneficiary. The beneficiary does not have direct control of or access to the funds.
Public benefits are vital for meeting special needs individuals’ basic needs, but they do not provide many opportunities or options. A special needs trust can provide for better housing, more treatment options, job training and education, travel, electronic equipment and other resources. With supplemental funds, special needs individuals can often live a life that is more comfortable and productive.
Types of Special Needs Trusts
Here are some of the terms that are frequently used to describe special needs trusts:
- Third party – Funded by someone other than the beneficiary, and often created as a testamentary trust. The most common type of special needs trust.
- First party – Also known as self-created, this type of trust holds the special needs individual’s own assets; d(4)(A) and d(4)(C) trusts can both be used for this purpose.
- Living trust – A trust created while the family members are alive. Other family members can contribute, and probate may be avoided. Also, the trustee can gain experience administering the trust.
- Testamentary trust – A trust which is incorporated into a last will and testament so that it is created upon the family member’s death. Can be funded with life insurance.
- Revocable trust – Allows the family to maintain a maximum amount of control over the trust.
- Irrevocable trust – Beneficial when income, estate or gift taxes are a concern.
Special Needs Trust Funding
Depending on the family’s resources, funding may consist of existing assets that are placed in the trust and prudently managed by the trustee. If the family’s resources are not abundant, it may be a strong option to fund the trust with life insurance.
Choosing a Trustee
The trustee is responsible for administering the special needs trust. The role is based on the discretionary powers awarded in the trust. Family members can serve as trustees, but this can create a conflict in cases where the family member is not scrupulous about using the money for the benefit of the special needs relative.
People who may serve as trustee include:
- Family members
- Trust companies
- A family member and a trust company as co-trustees
Hook Law Center can help you create a special needs trust that will provide the greatest benefit for your loved one with disabilities.