What is a Special Needs Trust?
A Special Needs Trust (SNT) is a type of trust created and funded on behalf of a disabled individual to care for their needs, and such a trust must be designed to avoid conflicting with government provisions like the Medicaid. An SNT may be created by a parent, guardian or the court, for the benefit of a disabled child, and the trust may either be funded with the assets of the incapacitated person or by the parent or guardian. If funded by the former and he or she has full rights to the capital without restriction, then the trust is said to be a “self-settled” trust. However, a disabled individual can create the trust by self so long he or she is mentally sound enough to do so, according to the Special Needs Trust Fairness Act. When the trust is funded by someone other than the disabled, then it is called a third-party trust.
Eligibility for SNT
One must be below 65 to be eligible for a self-settled SNT according to the Social Security Act,, and must stand to gain nothing whatsoever due to the handicap. The federal law only allows disabled persons over 65 to be involved in a pooled trust and not an SNT.
How do I Establish a Special Needs Trust?
Once you notice that your child is dependent on you for for his or her personal needs, then an SNT becomes totally necessary. Naturally you would be at an advantage when you have an estate planning lawyer create the trust for you to avoid hitches that may come up when you go through the process with inadequate know-how. The terms of an SNT prohibit the trustee of the trust from using the trust assets to make payments for services or items not provided for public benefit. The SNT is such that, it complements the inadequacies of government public benefits, providing supplementary care that may not naturally be provided by the government.
What should I include in my SNT?
The purpose of the SNT is to provide quality of life and not items already provided by the government, such as food and home care. The funds put into the trust are for the trustee to distribute accordingly. Hence, when creating the trust, you should include expenses and services which would be needed by the disabled individual but not provided by Medicaid, Internet services, vacations, etc. Funds to cater for taxes, transportation, funeral and other expenses are typical items to include in your SNT.
Merits and demerits of a Special Needs Trust
- SNTs can give you assurance that your disabled child will be well taken care of when you are no more.
- By reason of the terms of the trust, there is no fear of abuse as the trust funds are strictly for the care of the disabled individual. No amount or asset from the trust can be taken and used by the guardian for any purpose outside the benefit of the individual.
- SNTs can also keep the beneficiary eligible for government programs such as Medicaid and SSI, as well as provide those things not provided by these government programs.
- In an SNT, the funds are tax-deductible.
- You, as the Grantor or trustor, have only a limited control over the trust, as full control is handed over to the trustee once the trust is created.
- Special Needs Trusts are expensive to set up and quite difficult to manage. They often require a minimum and high annual charges.
- In the event of death, the trust terminates and all the funds in the trust gets wiped out when Medicaid is reimbursed, and this puts you in a tough financial situation.
Regardless of the above demerits, it would be bad enough not planning ahead for your child’s special needs. Without it, you expose your child to the risk of not been provided with basic needs as well as other government benefits. As it stands, the pros outweighs the cons, so why not create a Special Needs Trust today? Why not start planning now? The best estate planning lawyers are ever ready to serve your desires and offer you and your loved ones the very best. Contact an estate planning lawyer today to create for you an effective Special Needs Trust.