What Is a Special Needs Trust?

Also called a supplemental needs trust, a special needs trust is created to ensure that any funds or assets transferred to the disabled beneficiary will not impact their admissibility from assistance from the government.

When you set up a trust for your disabled beneficiary, you are making the necessary plans to secure the future of your disabled loved when the inevitable happens to you.

These types of trusts acknowledge the unique challenges and circumstances that disable individuals face. A supplemental needs trust also takes into account the delicate cooperation with programs from the government designed to help disabled people.

With this type of trust, you can ensure that there are additional resources and programs in place to care for your disabled loved one – while at the same time protecting your beneficiary’s admissibility for government assistance programs.

A Trust Ensures that Your Disabled Beneficiary Is Still Eligible for Government Assistance

Many disabled individuals can’t go to the traditional workforce route. Thus, they largely depend on assistance from the government.

However, to be eligible for different types of government assistance programs, the individuals in question must have assets that fall within a certain threshold. Currently, the requirements for these assets are low.

If you plan to leave a modest inheritance or gift to your disabled loved one, the government might remove their eligibility for assistance. It is for this very reason that a trust is utilized.

It’s specially created to ensure that your beneficiary remains eligible for government assistance while simultaneously allowing you to name a disabled loved one as a beneficiary in your trust.

Benefits for the Disabled

When you prepare a supplemental needs trust, the mechanics of it ensure that your disabled loved one’s eligibility for government assistance is not impacted.

In this type of trust, the assets are set up for the disabled beneficiary to benefit from. However, a trustee is also named to oversee the legal title of the trust.

What Does This Type of Trust Cover?

The distributions from this type of trust do not cover the necessary support. What it does cover is supplemental items – thus, the name supplemental needs trust. These supplemental items include education, hobbies, vacation, and entertainment. It can also cover medical expenses that go beyond necessities.

Types of Supplemental Needs Trust

First Party

This trust is used when a disabled individual receives a settlement or inheritance from the court. Another scenario where this trust is used is when the beneficiary becomes disabled later in life but was not disabled before receiving the estate or assets.

The U.S.C. Section 1382c(a)(3)(A) defines the specific requirements of being eligible for this type of supplemental needs trust. Also, the beneficiary receiving this trust must be no older than 65 at the time of the trust’s creation.

A parent, grandparent, legal guardian or the actual disabled person can establish this type of supplemental needs trust.  The Social Security Administration and the Department of Human Services must approve the trust before it takes effect.

Upon the death of the beneficiary of the first party supplemental needs trust, the government is reimbursed for the remaining inheritance in the trust. This is also called a pay-back provision.

Third-Party

This type of supplemental needs trust is drafted on behalf of the disabled individual. The funds will be coming from another individual, not necessarily a family member. This type of trust is not irrevocable or unalterable at the time of its creation.

The main advantage of using this type of trust is there’s no requirement for the trustee to follow the payback provision. You, as the trust creator, can name a remainder beneficiary when the primary beneficiary dies.

Pooled Trusts

This third type of supplemental needs trust can either be classified as third-party or first-party – depending on the specific situation. This is usually created and filed by a non-profit organization.

Key Takeaway

A special needs trust is an essential tool when planning for the future of your disabled beneficiary. Navigating the legal requirements of this type of trust can get complicated.

Thus, it would help if you had the assistance of an estate planning attorney with experience in handling trusts with disabled beneficiaries. This way, you’ll know the best type of trust you can establish for your disabled loved one.