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Establishing a Special Needs Trust: How, Why and Who

Troy Werner and his family

Written by Troy Werner

Troy Werner has been an indispensable asset to The Werner Law Firm since joining in 2009, providing exceptional legal service to its clients.

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POSTED ON: November 30, 2020

Suppose you have a loved one with a disability qualifying for government benefits. In that case, the chances are that you might want to ensure their wellbeing past what the government provides after you pass away. Simply bequeathing property or money to a loved one is not a solution, however. Not only could that impose […]

Suppose you have a loved one with a disability qualifying for government benefits. In that case, the chances are that you might want to ensure their wellbeing past what the government provides after you pass away. Simply bequeathing property or money to a loved one is not a solution, however. Not only could that impose a severe tax burden upon them depending on where they live, but it will also disqualify them from means-tested benefits, such as Medicaid and SSI.

Furthermore, there are distinct dangers – such as financial abuse – to consider when merely bequeathing a large sum to a special needs child without oversight and careful legal protection. Fortunately, there is a way you can help your loved ones retain their benefits and continue to provide for them even after death. The key is a special needs trust.

What Is a Special Needs Trust?

Special needs trusts are revocable trusts designed to provide for a loved one with specific disabilities through a sizeable fund and an advocate bound by their fiduciary duty. These trusts allow parents to provide for their children with a fund after they have died without disqualifying their children from additional government aid.

There are no minimum requirements for setting up a special needs trust, although different estate planning professionals may suggest a certain minimum amount to provide the possible protection. Special needs trusts need not be funded with cash – they can be financed through other family assets, life insurance policies, or retirement accounts.

Multiple persons can add assets to a special needs trust. A special needs trust is a type of trust with a specific language included in it. Special needs trusts are not significantly distinct from other trusts – they retain the same basic requirements and anatomy – but are distinguished by legal language designed to protect and provide for the beneficiary over a much more extended period than usual.

Trusts are legal entities created and defined by a trust document. These documents outline the details of the trust's purpose and the extent, and what is funded. Here is some other information to remember:

      • The person creating a trust is called the grantor or trustor.
      • The person they trust is for is the beneficiary.
      • The individual maintaining and executing the trust until it is ultimately dissolved is the trustee.
      • Assets and accounts used to fund a trust must be designated via their respective titles or other paperwork designating the trust as a beneficiary of an account or asset.

Because the individuals involved in a special needs trust will typically bear much greater responsibilities than in a usual trust, it is advised to work with professionals to set up the document, choose a trustee and advocate, and plan for the future.

Why Create a Special Needs Trust?

Special needs trusts are not unique. They are one of several options families may consider when setting up an estate plan. Pooled-asset trusts or pooled disability trusts are other options for providing for a loved one with a disability.

They are special needs trusts that cater to a group rather than a single individual beneficiary. These trusts can help families provide their special needs children if a dedicated individual special needs trust is not an option.

This allows for more consistent and stable investment and management options by being a much larger pooled trust managed by a non-profit organization. Another option is ABLE accounts - tax-advantaged savings accounts for persons with disabilities that serve as a lower-cost alternative to special needs trusts.

However, suppose you have the means to provide for your child in the long-term after your death through a larger fund. In that case, a special needs trust provides the most security, flexibility, and potential to help your child remain financially stable.

Choosing a Trustee

Trustees play a vital role in managing the funds of a special needs trust, not only by administering the trust as per the grantor's wishes (while acting in the best interest of the beneficiary) but also by:

      • Paying taxes
      • Meticulously keeping records
      • Investing assets and property
      • Providing for the beneficiary

The trustee must also report the trust to the Social Security Administration and is responsible for ensuring that all the beneficiary's supplemental needs are cared for, including:

      • Forms of caregiving not covered by Medicaid
      • Utilities and services are not paid through Security Supplemental Income (SSI)
      • Travel and other experiences
      • Education
      • Pet care
      • Other goods, including clothing, electronics, and furniture

This is a complicated job. Managing the trust's funds to ensure it provides as much care as possible for as long as possible while continuing to provide oversight on the beneficiary's needs is a tall order, so it's essential to choose a thoroughly qualified trustee.

Aside from choosing among close family, there are other options to consider. These include choosing from various institutions, professional advisers, or even friends – each with its pros and cons.

Choosing an Advocate

If you choose a trustee to manage the logistics of the trust, then perhaps you might want to designate someone much closer to the beneficiary to act as their representative and advocate – working very closely with the trustee to ensure that they do their fiduciary duty and provide as per the trust's design.

Consider Professional Legal Help

There are quite a few steps and details to observe when setting up a special needs trust for your loved one, and it is just one crucial part of setting up a more generous estate plan. Estate planning professionals specialize in coordinating with you to develop an estate plan that will best serve your interests and take the most current laws and regulations into account.

They can help you answer crucial questions about inheritance and bequeathment, taxes, end-of-life care decision-making, and more. It is also essential to consult an estate planning professional every few years or after every significant life an event to assess your estate plan and make appropriate changes.

The rules surrounding trusts can change quite often, and trusts written just a few years ago may no longer accurately reflect the law's current state. Trusts created mostly from boilerplate language are even more dangerous, as they may not account for state-specific issues or are simply outdated or not specific enough.

Even innocuous technical mistakes can impact a trust's validity and present severe headaches after your death – especially in a document as important as a special needs trust. It is best to work with someone specializing in special needs trusts and know precisely how to write a trust for your needs and circumstances.

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