In general, a trust is created when property or assets are managed by a person for another person's benefit. The person or entity who manages the trust is known as the “trustee” and is entrusted with the responsibility of making decisions in the best interest of the person who benefits from the trust, known as the beneficiary. Trusts are advantageous because they provide the ability to place conditions on how and when your assets will be distributed when you die, reduce estate and gift taxes, and allow you to skip the lengthy and expensive probate process if you become incapacitated and need someone to manage your financial affairs. It can also be faster to settle someone's affairs after their death if they have a trust, which can avoid settling their estate in probate court.
Special needs trusts are a class of trusts made specifically for the benefit of those with physical and/or mental disabilities. These differ from the typical trust due to the special conditions that often need to be in place to accommodate the specific needs and lifestyle of the beneficiary of a special needs trust. Another one of the main reasons for having this type of trust is to ensure the beneficiary does not render him/herself ineligible for government benefits due to an increase in assets.
Choosing the right trustee for a special needs trust is extremely important and the trustee must be someone you are certain will act in the beneficiary's best interest after your death. Often, this takes place in the form of a trusted family member who knows the beneficiary and his/her needs. However, if your situation doesn't allow for this, there are professional trust companies that specialize in managing special needs trusts and you could designate one of these companies as trustee.
One of the important features of a special needs trust is that the assets in the trust will not be counted toward asset thresholds contained in government programs such as Supplemental Security Income (SSI) and Medicaid. The trustee has complete control over the assets in the trust, instead of the beneficiary. For this reason, government programs such as SSI and Medicaid ignore assets in a trust when determining eligibility. Many people are unaware of this and make the mistake of distributing their assets to a loved one with special needs through a will. This could cause them to exceed the $2,000.00 countable asset limits for SSI and/or Medicaid, thus losing their benefits from these programs.
Special needs trust may also be set up to manage the proceeds from a legal settlement on behalf of a person who became disabled after a serious car accident, medical malpractice incident, or other injury. This is important for the same reason as mentioned earlier, to ensure that funds received from a lawsuit settlement do not preclude the beneficiary from receiving government benefits.
Even if you believe your loved one with special needs will never need government benefits, it is still prudent to consider a special needs trust. I often include a contingent special needs trust in my clients' revocable living trusts in case one of their beneficiaries becomes disabled in the future. Special needs trusts can provide for the unique and specific needs of the beneficiary in ways that other types of trusts cannot. Further, you never know what may happen in the future, especially when you're no longer around. It may turn out that your loved one needs these government benefits one day and they'll be glad you provided them this option.
Special needs trusts are an excellent vehicle to ensure your loved one with special needs is taken care of in the event of your passing. However, they can be difficult to set up and it is advised that you consult an elder law attorney who will be able to examine your specific situation and make sure your loved one is taken care of for years to come. If you would like to speak with an attorney regarding your situation, or have questions about something you have read, please do not hesitate to contact my office.