What is A Special Needs Trust?
A Special Needs Trust, or Supplemental Needs Trust (“SNT”), is a discretionary, spendthrift trust created for a person who is disabled as a way to supplement, but not replace any public benefits which the disabled individual might otherwise be entitled. The SNT may be created by a third-party, if the trust is to be funded by the third party, or by the parents, grandparents, legal guardian or court if the trust will be funded with the disabled individual’s own funds.
I have a disabled child. What are my estate planning options with regards to my child?
Parents of a child with a disability have four options with respect to estate planning:
- Disinherit the child;
- Distribute a share to the child (this will disqualify the individual for public benefits such as Medicaid or Social Security);
- Distribute a share to another family member with the understanding he/she will use the money for the disabled child (there are a lot of pitfalls with this choice); or
- Create a Special Needs Trust for the disabled child and distribute the his or her share to the trust.
What are the advantages of a Special Needs Trust?
A Special Needs Trust can:
- Help maintain the disabled individual’s potential eligibility for a group home or nursing home;
- Purchase a home for the disabled person;
- Pay for things that Medicaid does not cover, including home care, wheelchairs, handicap accessible vans, mechanical beds, lift chairs, etc.;
- Pay for recreational and cultural experiences for the disabled individual;
- Help enrich the disabled individual’s life.
What requirements must be met when establishing a Special Needs Trust?
There are two key requirements:
- The trustee must be given absolute control over the distribution of funds;
- The disabled person cannot have the ability to direct a distribution from the trust, to revoke or amend the trust, or to select the trustee.
What happens to any money remaining in trust after the disabled person’s death?
This depends on who funded the trust. In a third-party (created by parent or any person other than the disabled individual) SNT, the individual who creates and funds the trust determines who to name as contingent beneficiaries of any remaining trust assets after the disabled person’s death. The state has no right to any of the remaining assets after the disabled person’s death.
If the trust is created with the disabled person’s own funds (i.e., funds received through an inheritance, personal injury settlement, lawsuit), the trust must include payback provisions to the state up to the amount of Medicaid benefits paid on the disabled person’s behalf.
Who should serve as Trustee of the Special Needs Trust?
Selecting a trustee for the SNT is one of the most important steps in the planning process. A special needs trustee should have these characteristics:
- A long term commitment;
- A special sensitivity to the individual’s disabilities;
- Active involvement in monitoring the disabled person’s needs;
- A thorough knowledge of the complex rules with regards to use of trust funds for the disabled individual; and
- The ability to be a prudent investor and distributor of trust funds.
While family members often want to serve as trustee, they typically don’t have all of the requisite characteristics. It is usually recommended that a professional trustee be retained to oversee the SNT, with a family member named as co-trustee.
Can a Special Needs Trust be created for someone who is over age 65?
If the trust is created with the disabled person's funds, any funds deposited into a SNT after the disabled individual reaches age 65 can result in a loss in public benefits. However, funds can still be deposited into a “pooled trust” for a disabled individual who is 65 or older, and the disabled person will not lose Medicaid benefits. The Missouri legislature authorized such trusts, through a non-profit known as the Midwest Special Needs Trust (“MSNT”). MSNT will accept any size SNT (even very small amounts) to create a pooled trust account for the disabled individual, and its trustee fees are reasonable. A family member generally serves as co-trustee with MSNT in managing trust funds. There is no age restrictions if the trust is created and funded by a third party.