SPECIAL NEEDS TRUST

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PECIAL NEEDS TRUST (SNT)

A Special Needs Trust (SNT) is an irrevocable, discretionary trust with special needs provisions that holds property for the benefit of a disabled child or adult. The trust assets can be used to supplement benefits received from various government assistance programs including Social Security Income and Medicaid.

Purpose
For parents with a physically or mentally disabled child, minimizing estate tax liability may be secondary to other planning concerns, namely ensuring their child is taken care of when they are no longer able to do so. One way to accomplish this is with a Special Needs Trust.

THE SNT IS SPECIALLY DESIGNATED SO THE TRUST ASSETS ARE NOT COUNTED AS THE BENEFICIARY’S ASSETS FOR PURPOSE OF DETERMINING ELIGIBILITY FOR BENEFITS UNDER ASSISTANCE PROGRAMS. TO ACCOMPLISH THIS, THE DISABLED BENEFICIARY CANNOT CONTROL THE AMOUNT OR FREQUENCY OF TRUST DISTRIBUTIONS, REVOKE THE TRUST OR USE TRUST ASSETS FOR HIS OR HER NON SPECIAL NEED.

Process

The trust is managed by a trustee, who is responsible for holding, administering and distributing the trust property for the benefit of the disabled person during their lifetime. The SNT is usually set up by the parents or other family members of the disabled child, and the parents usually serve as initial trustee(s) until they die or become incapacitated. After that, a pre-selected successor serves according to the instructions in the trust.

The parents may also want to draft a separate “letter of intent” to assist the trustee in caring for the special needs child.

The trustee of the SNT can make distributions from the trust to meet supplemental needs of the disabled beneficiary that are not otherwise being met by assistance programs. Trust distributions can also be used to pay
for extra “quality of life” items and services.

Property may be added to the SNT at any time. Parents can make gifts to the trust during their lives or they can “pour-over” that child’s share of their estate into the SNT at death. The trust may also be named the beneficiary of  a life insurance policy, so parents should consider permanent life insurance to fund the trust with tax-free death benefit.  When creating the trust, the parents are able to designate contingent beneficiaries for the trust assets, should any remain after the death of the special needs child.

Creation
Medicaid rules are administered by the individual states, so such trusts are state specific and need to be drafted by legal counsel in the applicable jurisdiction.