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Financial Planning Insights

Special Needs Trusts: What You Need To Know

By The Chandler & Knowles Team | | 0

Medical problems or disabilities can strike anyone, at any time. A Special Needs Trust is a trust youspecial needs trust can set up to help a loved one who is disabled or has chronic medical difficulties. The SNT may consist of any number of types of assets, including cash, patents, jewelry, real estate, stocks, businesses, or other property. 

The primary purpose of a special needs trust is to pay for services and goods that are not completely covered by government assistance programs, such as Medicaid or SSI. A trustee must be designated to administer or sell any assets. The trustee generally has the authority to sell these assets or convert them to cash. The role of this trustee is crucial, as they must have knowledge of the general rules of the trust, as well as keep necessary records, invest in applicable property, and assess the needs of the beneficiary of the trust. It's important to know that Special Needs Trusts are irrevocable. They cannot be taken by creditors or by lawsuits.

Who Needs a Special Needs Trust?

People who are chronically ill or mentally or physically disabled may benefit from a Special Needs Trust. The trust is usually set up for those who are receiving some type of government assistance from Social Security, Supplemental Security Income, Medicare, or Medicaid. The important purpose of the trust is to help the recipient take care of vital needs, while at the same time maintaining their eligibility for government assistance.

special needs trustWhy Is It Beneficial?

If property or cash was given directly to the special needs individual, they might lose eligibility to participate in, and benefit from, one of these government assistance programs. Special Needs Trusts permit the improvement of the life of the trust recipient by paying for allowable items that these programs typically do not cover completely. These might include furniture, clothing, pet care, cell phone service, cleaning service, or other items or services. The trust also gives some assurance that available funds will be utilized as directed.

Types of Special Needs Trusts 

There are two main types of Special Needs Trusts:

First Party SNT

The First Party SNT is a trust funded by the beneficiary who has special needs, from their own property. Government programs often limit the value of assets a beneficiary may have and still qualify for assistance. A First Party Special Needs Trust may permit the recipient to utilize funds without losing any benefits from these government programs. Funding for a First Party SNT might come from any of numerous sources, such as life insurance, an inheritance, a divorce settlement, a personal injury award, or other property. It is important to know that the other main type of SNT, the Third Party Special Needs Trust, cannot protect property that the person with special needs receives directly. This property, whatever its origin, must be protected by a First Party trust.

Third Party SNT 

More typically, a Third Party SNT is used to fund the trust. This is a trust formed with assets special needs trust_3that usually belong to family members, that are set aside for the loved one. Care, again, must be taken that the funds are used for items that are permitted by the government assistance programs. But the class of allowable expenditures is quite broad, including furniture, professional fees, vacations, hobby items, some luxury items, computer equipment, pet expenditures, and transport. Direct cash gifts to the beneficiary can cause the loss of government benefits. The beneficiary does not have direct access to either property or funds of these trusts. These are the responsibility of the trustee.

There are a number of ways that the trust may be terminated. One way is upon the death of the beneficiary. Others are the loss of either eligibility or the need for government aid. And, of course, if all funds or assets in the fund are depleted. Different rules apply to remnants of the trust after a beneficiary's death depending on whether it is a First Person or Third Person Trust. A First Person Trust is required to repay any applicable Medicaid benefits paid to the beneficiary, while a Third Party SNT can control the distribution of assets by designating other beneficiaries at that time.

Contact The Chandler & Knowles Team 

A Special Needs Trust could be the most effective way to aid someone in your family with special needs. It permits family members to help without their loved ones losing the benefits of the government programs that are also often so crucially necessary. A careful assessment of your particular situation is required. The tax ramifications of these trusts can be complex. As in all tax or financial matters, it is almost always beneficial to consult the experts. Contact the Chandler & Knowles Team today to find out more about setting up a Special Needs Trust for your loved one.

 

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