Earlier this month, Supplemental Needs Trusts were discussed. Today, we’ll focus on Special Needs Trusts. A Special Needs Trust is a tool in which a person with a disability is able to retain their assets by placing them into a trust to use the assets to supplement the government benefits the disabled person will receive during their lifetime. At the disabled individual’s death, any assets remaining in the trust must be repaid to the state for those government benefits paid on behalf of the disabled person during their lifetime.
The disabled person is the beneficiary of the trust. A person is considered “disabled” for purposes of a Special Needs Trust when he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment, which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than twelve months. For a person under the age of 18, then he or she must suffer from any medically determinable physical or mental impairment of comparable severity.
The trust beneficiary must be under 65 when the trust is established. If the Special Needs Trust is established while the beneficiary is under age 65, the trust funds will remain protected when the beneficiary reaches the age of 65.
A Special Needs Trust can consist only of funds and assets belonging to the beneficiary or given to the beneficiary or awarded to him or her prior to reaching age 65. Resources or income belonging to anyone other than the beneficiary cannot be added to the trust. Parents or grandparents cannot add to the Special Needs Trust either outright or by designation in a Will. If parents or other family members or friends wish to give money, they can create a Supplemental Needs Trust.
Both the income and principal of the trust may be used by the trustee to augment the government benefits received by the person with a disability.
The Special Needs Trust must specify that upon termination of the trust, the Department of Human Services will receive all amounts remaining in the trust up to an amount equal to the total medical expenses paid through Medical Assistance on the disabled person’s behalf.
The disabled person cannot be the trustee of his or her trust. Therefore, someone else must act as trustee. An effective trustee of a Special Needs Trust should:
- Be familiar with the beneficiary’s disability, including his or her medical history, required medications and treating physicians
- Have an understanding of the beneficiary’s special needs, including assistive equipment, dietary requirements, etc.
- Understand the tasks and requirements to establish, maintain and operate the trust, along with the rules relating to federal and state benefit eligibility
- Have an understanding of state law as it relates to the Special Needs Trust
- Have strong money management skills
Family members are a good choice for trustee because they are often most familiar with the beneficiary’s needs. If a beneficiary has no family or close relatives available or the duties and responsibilities would be overwhelming and unmanageable for the family members, then professional fiduciaries are available to serve as trustees.
As can be seen, Special Needs Trusts can be complicated and must be used for very specific expenses. Therefore, be sure to contact a specialist to assist in the creation of a trust like this.