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Understanding Special Needs Trusts

by | Dec 7, 2021 | Articles, Estate Planning

Leaving behind a son or daughter with special needs is a harrowing thought no parent should ever experience. It raises questions such as:

  • “Who will take care of them?”
  • “How will they survive?”
  • “How can they be financially stable when I’m gone?”

Fortunately, estate planning attorneys have a unique tool called the Special Needs Trust (SNT) that can solve many of the problems faced by families dealing with special needs planning. With the right plan, you can rest assured that your child or loved one will be cared for when you are gone.

What is a Special Needs Trust?

A special needs trust (SNT) is a trust fund that caters specifically to an individual with special needs.  For more information on how a trust works in general, read our guide on what a trust is.  Special needs is a broad definition but can include individuals with mental or physical disabilities, or a person that requires extra care or is on some for of public assistance.  A special needs trust can ensure that any inheritance left by a family or loved one is used for the continued care and support of that individual.

Improper estate plans might seek to disinherit a disabled child (so as to not jeopardize their public benefits), or may give their share to another family member with the hopes that it will be used for their benefit.  By giving a disabled child’s share to a family member such as a sibling, there is no guarantee that the sibling will use those funds as intended, and additionally those funds may be subject to the sibling’s divorce or creditors.  Completely disinheriting the child provides no continued support and leaves them completely reliant upon public benefits.

This type of trust is an excellent option for grandparents, parents, and guardians for passing on their wealth to a relative who is incapable of providing for themselves due to a disability. SNTs also protect these individuals from immediately inheriting a large estate which could disqualify them from much-needed government assistance like Medicaid, Supplemental Security Income (SSI), and subsidized housing.

Additionally, SNTs can also be used to hold proceeds of lawsuit or settlement received by a disabled individual.

Selecting a Trustee or Guardian

Choosing a trustee or guardian for the beneficiary must be done with great care and consideration. The family member or court-appointed person must be responsible and trustworthy, as they will be in charge of both caring for the inheritor and managing the assets left behind in the beneficiary’s interest.  If an individual is a great caregiver but not responsible with money, you can separate these duties by appointing a caregiver and a trustee separately.

Usually, family members are the best trustees or guardians because they know of the disabled person’s needs. It is also possible for a professional trustee to manage the funds for the special needs individual, especially if none of the family members can handle the inheritor’s condition and manage an estate. Keep in mind professional guardians and trustees charge a fee for their services.

How a Special Needs Trust Works

The individual who sets up the trust (the “Grantor”) can set the trust up while they are alive, or can include the trust in their will, and it will only come into existence upon their death.  Once the trust is established the trustees can use trust funds to purchase products or services on behalf of the special needs individual, in accordance with the specific wishes of the grantor. This is allows a person to pass their personal goals and values on to their special needs family member and ensures that there are funds available to supplement any government assistance or income that the individual may earn.  By paying for goods or services directly, the special needs individual is not at risk for losing any governmental benefits.  Some of these expenses may include:

  • Medical expenses
  • Physical therapy
  • Care attendants
  • Education
  • Food
  • Entertainment
  • Clothing

Requiring Legal Representation

 Any person of the right age and sound mind can make use of an SNT provided the correct rules and regulations are followed and the trust is properly set up.  It is especially important to follow government requirements and approvals needed for a first party special needs trust.

Proper Planning with Special Needs Trusts 

Protecting your disabled family member’s quality of life is of the one of the most important factors when establishing your estate plan.  You may want to consider whether or not to leave your estate equally to all of your children, or to provide more a larger amount for a disabled child who may need more assistance throughout their life.  It may also be worth considering a lifetime special needs trust that can easily be funded through gifting or inheritance left by other family members, such as grandparents.  The most important factor in establishing a special needs plan it to enlist the services of an attorney who specializes in special needs planning and who can help you create the best estate plan that meets your family’s goals and values.

Set a meeting with Cherewka Law today to set up an SNT for your loved ones! We’re a reputable firm in Wormleysburg, PA, that provides highly personalized services for estate planning, businesses, non-profits, and real estate!

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