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Special Needs Trust

Planning is not optional for parents or grandparents of children with special needs. It is crucial to ensure that the child will have the ordinary comforts of life that are not provided by government assistance. A special needs trust is frequently the most effective way to provide security and quality of life for a special needs individual.  A special needs trust is a legal arrangement where a trustee holds and distributes trust assets for a beneficiary who has special needs in a manner that protects the special needs child's eligibility for government provided food, clothing, and shelter benefits via Supplemental Security Income (SSI) and Medicaid.  The special needs trust provides supplemental assistance for needs not already covered by government programs.  A family member can often act as the trustee and use their discretion to distribute or not distribute assets for the supplemental needs of the special needs individual.  Upon the death of the special needs individual, the trust assets would go to the individual's family members, friends, or perhaps a charity. The only alternatives to a special needs trust are 1) leaving nothing to the child, or 2) creating a trust that does not contain specific Special Needs Trust language (which causes the child to lose public benefits), or 3) leaving an outright inheritance to the child which disqualifies them for public benefits. None of the above are good options when compared to a Special Needs Trust. As an estate planning attorney who has a sister with special needs, Buell & Ezell attorney Michael L. Smith is uniquely qualified to assist families with the legal and personal issues associated with special needs planning.

Bequeathing To Other Family Members

While it might seem like a good idea simply to leave a set amount of money to your disabled child's sibling or other close relative, with the understanding that the money will be spent on the disabled child, this often backfires:

  1. The money can fall prey to judgments or divorce settlements against the relative, or can be lost in bankruptcy
  2. The relative can't be legally forced to use the money to benefit the disabled person
  3. The relative to whom the money is left may be taxed at a higher rate than the disabled child or a trust
  4. Should the relative die before the disabled child, the money would go to his or her heirs

A special needs trust avoids these potential problems without putting an emotional strain on family relations. Monthly SSI benefits can be spent on food, clothing and shelter. The special needs trust money can then go to pay for virtually any expense not met by public or private agencies such as:

  1. Medical and dental expenses not otherwise provided for
  2. Education
  3. Training
  4. Rehabilitation
  5. Transportation (including the purchase of a vehicle)
  6. Life insurance premiums
  7. Computer equipment and electronics
  8. Recreation
  9. Vacations and airline tickets
  10. Summer camp

Choosing a Trustee

Anyone other than the child with special needs can serve as the trustee. The choice of trustee is one of the most important considerations that the family will face. The trustee will be responsible for custody of the trust assets as well as determining when to distribute funds for the benefit of the child.

The trustee for a special needs trust for your disabled child could be:

  1. A trusted family member who is close to your child
  2. A team approach, with a family member as trustee with the ability to delegate the investment functions to a financial advisor
  3. A family friend such as special needs teacher close to the child, or perhaps your family’s minister

Special Needs Trust Requirements

To be effective, a special needs trust document:

  1. Must have language that makes it impossible for your disabled child to demand that the trust funds be distributed
  2. Must give the trustee full discretion to spend the trust assets as he or she sees fit
  3. Must make it clear that the trust isn't intended to be a basic support trust, but that the money is intended to be used solely to supplement benefits that are otherwise available to your child
  4. Should specify that the trust is to be administered so that eligibility for public government assistance isn't jeopardized
  5. Must be managed by a trustee other than the child with special needs

Funding A Special Needs Trust

A special needs trust can be funded through a will or gifts from relatives and friends made directly to the trust instead of to your disabled child. Life insurance can be the most cost effective and efficient method for providing the funding necessary to establish the trust and provide for the child throughout their lifetime. It immediately places assets in the trust upon the deaths of the parents or insureds.

Letter of Intent

One way to be clear about what you intend for your disabled child’s future is to draft a “Letter Of Intent” to be given to his or her trustee at the time of your death. This document gives family members and others the benefit of your knowledge about your child’s capabilities, needs and fears, and can be updated periodically.

A letter of intent can include:

  1. Biographical info
  2. Financial details
  3. Medical history and needs
  4. Social contacts
  5. Any negative influences you'd like to guard against
  6. Personality traits
  7. Skills, hobbies and physical abilities
  8. Goals your child is working toward

Key Points:

  1. In order to qualify for the Social Security Administration's Supplemental Security Income Benefits, ("SSI"), a disabled adult can't hold more than $2,000 in assets, excluding a car and a home. SSI benefits must be spent on food, clothing and shelter expenses.
  2. Eligibility for SSI makes a disabled person eligible for food stamps and Medicaid, which pays medical expenses, nursing home care and mental health services.
  3. As these benefits add greatly to a disabled person's ability to care for themselves, you wouldn't want to give your disabled child property that would disqualify him or her from receiving these benefits.
  4. Special Needs Trusts provide the child with money for expenses not met by public benefits.
  5. Special Needs Trust language is typically included in the parents will or revocable trust and the trust is therefore established upon the parent’s death.
  6. There is no limit to the amount which can be placed in the Special Needs Trust.