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What are the unique challenges of a special needs trust?

| Jun 18, 2021 | Estate Planning

For families who have a child with developmental or other disabilities, planning for their future needs entails an awareness of unique considerations. A trust is a legal document created for the purpose of holding assets for the benefit of another. Once property or financial assets are placed in the trust, they belong to it, and the creator of the trust names a trustee to manage assets for the named beneficiary or beneficiaries.

Special needs trusts (SNT’s) are designed for the unique present and future needs of a family member who has physical or mental disabilities, and who may also not have the capacity to handle their own finances. Making sure that this type of trust follows federal as well as state statutory requirements, so that the special needs person will also have access to financial assistance, are some of the challenges that a caregiver must address in the process of estate planning.

What types of SNT’s are there?

There are several types of SNT’s that may be set up for different reasons. A third party or discretionary trust is one that may be funded by parents, grandparents or other family members, and is designed to provide assistance to the unique needs of a special needs child while preserving eligibility for government benefits.

A self-funded trust is established with assets belonging to the disabled person, and may also be funded either from a payout received as a result of a personal injury settlement (as a lump sum or a structured settlement), with child support or from an inheritance.

A pooled trust is managed by a non-profit organization for the benefit of a special needs person by using funds pooled for investment purposes under a pre-approved trust document that follows Social Security and Medicaid threshold requirements.

What government assistance is available?

For Maryland residents, a blend of Supplemental Security Income, Medicaid and Subsidized HUD Housing is available to special needs individuals who qualify. As SSI benefits only cover essential expenses, loved ones who set up an SNT can still provide supplemental support for their child’s lifestyle and unique needs, as long as certain requirements are met.

For example, a third-party trust can be set up as an intervivos or testamentary trust, but the trust must not be controlled or be revocable by the disabled person, and also cannot include a distribution provision that would exceed the means test for governmental support.

Discovering what is possible is key to the peace of mind that loved ones feel when they can ensure that a special needs family member will be able to live a full life. Having access to knowledgeable legal counsel is an essential part of this decision-making process.

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