Written by our preferred partner: Ryan Knight, Attorney at Law with Knight Legal.
Whether you have a special needs child or grandchild—or you yourself have special needs—you probably feel the importance and the challenge of meeting your financial needs, too. A special needs trust (or SNT, as is the commonly-used acronym) steps in to make sure you can leave financial support for your child after you’re gone, all while making sure they can still access those vital government benefits they rely on for care. It’s like a safety net that ensures they get the best of both worlds.
What Is a Special Needs Trust?
A special needs trust provides unique financial protection for people with disabilities or special needs. It’s designed to give them some extra financial help while still letting them keep their important government benefits, like Medicaid and Social Security income.
If your loved one is mentally or physically disabled, this type of trust provides the legal arrangement and fiduciary relationship they will need to receive income without getting in the way of their eligibility of being on a public assistance disability program.
There are three key players in a special needs trust:
- Grantor: This is the person who creates the trust. In the past, this person has been a parent or legal guardian as a way to plan ahead and look out for them. But in 2016, President Obama signed the 21st Century Cure Act into law which allows the trust beneficiary to set up their own SNT.1
- Trustee: They’re like the trust manager—making sure the money is spent wisely and helping out the person who needs it. They are appointed as someone who will act in the beneficiary’s best interest. While this can be the same person as the grantor, it’s recommended to be someone different. The beneficiary cannot be the trustee of their own trust.
- Beneficiary: This is the person the trust is helping out. The trust exists for their benefit, so they get the support they need.
What Can a Special Needs Trust Provide?
When you set up and handle a special needs trust the right way, it protects or provides assets for the beneficiary without causing them to miss out on their public benefits. This is important because in order to qualify for some of the government benefits that affect quality of life, the beneficiary needs to legally appear to have very few assets.
The benefits an SNT can protect include:
- Supplemental Security Income (SSI)
- Medicaid
- Section 8 Housing
- Food Stamps
Once a special needs trust is active, the distributions are made directly to third parties; so, it is not considered income to the beneficiary and will not reduce their public benefits.
How is a Special Needs Trust Funded?
There are two types of special needs trusts and they are funded and handled in slightly different ways.
Self-settled Special Needs Trust:
– funded by assets of the beneficiary
– established by the beneficiary’s parent, legal guardian, grandparent, or the court
– the beneficiary must be under 65 years old when this trust is set up
When the beneficiary of a self-settled SNT passes away, the Trust will reimburse Medicaid.
Third Party Special Needs Trust:
– funded by a third party
– established by a third party
– there is no age requirement for this type of trust
When the beneficiary of a third party SNT passes away, the trustee will be responsible for dissolving the trust, but no repayments need to be made to Medicaid or elsewhere.
How Are the Funds Used?
The trustee will use the funds in the trust to pay for the beneficiary’s lifestyle. According to the Alliance of Disability Advocates, there are two categories the distributions may fall into:2
Permissible Trust Distributions include:
- Payment to third parties for home repairs and improvements
- Tools for repairs and improvements made by homeowner
- School tuition, books, and supplies
- Health & life insurance
- Entertainment (books, movies, audio, video)
- Bus passes
- Purchase & maintenance of vehicle
- Household goods • Cleaning supplies
- Medical costs not covered by other benefits
- Massages
- Home care services not covered by other programs
- Medical equipment (e.g., wheelchair)
Distributions That Will Reduce Benefits include:
- Cash paid directly to the beneficiary
- Rent or mortgage payments
- Property taxes
- Homeowner association dues
- Homeowner’s insurance
- Utilities
- Utilities connection charges
- Lodging while on vacation
- Food or groceries
- Frequent restaurant meals
- Clothing
Setting up a special needs trust the right way is crucial in giving you the peace of mind you and your family are entitled to. If you’re unsure whether a special needs trust is right for your situation, it’s a good idea to speak with an attorney like myself who focuses their practice in estate planning. SNTs can get pretty intricate, and they require meticulous drafting and management. Don’t wait to get an expert on your side who can guide you through the process.
From Beacon Capital Management:
Ryan Knight, Attorney at Law owns Knight Legal and is our preferred partner. Beacon Capital Management, LLC is not affiliated with Knight Legal, but his office is conveniently located with our headquarters in Franklin, Tennessee.
If you’re ready to talk about a special needs trust, your legacy, your small business, your estate planning options, or your overall financial plan—give our firm a call. Beacon Capital Management is a full-service wealth management firm that takes a comprehensive approach to financial planning. We want to help you cover the most important areas of your life.