Special needs trusts are important estate planning tools for families with relatives who have disabilities. Also called a “supplemental needs trust,” a special needs trust allows someone to leave money to a trustee who holds property for the benefit of a disabled individual. This kind of trust can also be included in the Will of a person wishing to leave money to a disabled relative.
Special needs trusts are important because they allow people with physical or mental disabilities, and those with chronic or acquired illnesses, to benefit from an unlimited amount of assets and still be eligible to receive governmental benefits, such as Supplemental Security Income (SSI), Medicaid, and subsidized housing, that require that the recipient have little or no income and few assets. The key benefit of a special needs trusts is that the money held in the trust is not included in the disabled person’s assets for determining eligibility for those programs. These trusts thus allow disabled individuals access to additional money beyond the amounts received from the government. Money in a special needs trust can be used for “extras” such as:
- medical and dental care not paid by other sources;
- rehabilitation services or devices;
- educational expenses;
- entertainment and hobbies;
- transportation; and
- personal property and services.
A special needs trust shares the same basic features of any other trust. The individual setting up the trust (for example: the parent of a disabled child) is the “settlor” of the trust (also known as the “grantor” or “trustor”) for the disabled person (the “beneficiary”). The settlor appoints a trustee, who is the person who holds legal title to the trust property. The trustee holds the property for the benefit of the beneficiary. The trustee should be someone the settlor trusts and who is familiar with the needs of the beneficiary, and could be a family member, friend, financial advisor, or financial institution.
A special needs trusts can be set up during the settlor’s lifetime, or created under a will. Often parents will purchase life insurance policies to fund a special needs trust.
Setting up a special needs trust is a important way to ensure that a disabled relative can receive an inheritance or gift while not being disqualified for important government assistance. If you anticipate leaving property to a disabled relative, be sure to discuss a special needs trust with an estate planning attorney. Although special needs trusts are wonderful tools, the rules that govern them are complex and and expert legal advice is necessary to ensure they are set up and administered correctly.