Frequently Asked Questions About Special Needs Trusts

A special needs trust is a unique type of trust that allows a disabled individual to receive supplemental support without putting their eligibility for government benefits in jeopardy. In this article, we will go over 7 frequently asked questions about special needs trusts.

1. What is a Special Needs Trust?

SNTs are designed to hold and manage assets for the benefit of a person with disabilities. This is done in a way that the beneficiary will not lose access to government benefits. These trusts allow the beneficiary to receive supplemental funds without losing out on Social Security Income or Medicaid. Typically, these trusts are set up by a close family member such as a parent or grandparent.

2. Who Can Benefit from a Special Needs Trust?

SNTs are generally set up for individuals with special needs who need to keep their eligibility for government benefits. This is because the benefits they receive can be affected by assets or income.

3. Different Types of SNTs

These are 3 main types of SNTs. The first is a first-party trust. This trust is funded with the beneficiary’s assets. This could include inheritance or a personal injury settlement. Second, is a third-party trust. This type of trust is funded by someone other than the beneficiary, such as a parent or grandparent. Lastly, is a pooled trust. This type of trust is managed by a non-profit and has individual accounts for several beneficiaries.

4. How Are Special Needs Trusts Funded?

A special needs trust can be funded several different ways. This could include inheritance, a personal injury settlement, insurance policy, or through gifts. When funding a SNT there is no maximum limit on what you can place into the trust.

5. What Can Funds Be Used For?

The purpose of SNT funds is to support not supplant government benefits. The trustee can pay for a wide range of needs for the beneficiary. These could include medical and dental expenses, specialized equipment, education, recreation, transportation, or other items that enhance the quality of a beneficiary’s life. However, it is important to note that these funds should not be used to pay for basic needs like food, shelter, and clothing. To pay for these benefits you would want to set up and utilize an ABLE account.

6. What Role Does the Trustee Play?

The trustee is responsible for managing trust assets and making distributions according to the trust document. The trustee must act in the best interest of the beneficiary and ensure they do not jeopardize their government benefits.

7. What Happens When a Beneficiary Dies?

What happens when the disabled beneficiary dies will depend on the type of SNT you have. If it is a first-party SNT the trust will be subject to the payback provision. This is when the leftover funds reimburse the government agencies for the benefits provided. Any remaining assets would be distributed to secondary beneficiaries. With a third-party trust, you are not subject to the payback provision. All funds are distributed to secondary beneficiaries according to the way the trust dictates.

Setting Up a Special Needs Trust

If you feel a special needs trust would suit you and your family, meet with a qualified estate planner who can help you get the process started.

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