BY MARY E. VANDENACK
What is a special needs trust?
A special needs trust is a trust that can provide access to financial resources for a disabled family member while maintaining their access to governmental assistance. The trust can do this because it allows a third-party trustee to provide the beneficiary certain resources while limiting access so that government eligibility for aid is not diminished. Typically, such a trust can allow a disabled beneficiary to receive certain benefits in addition to what such beneficiary can receive solely on government assistance. .
Why should families consider special needs trusts?
Caring for a person with a disability can be a tremendously difficult task. Planning for the disabled person’s financial well-being can be especially challenging because of the cost of care. If a disabled person has resources generally available, the government rules require that such resources be exhausted BEFORE the disabled person is eligible for government aid. This can result in a disabled person having a substantially diminished standard of living when resources are exhausted. A special needs trust is a valuable tool to ensure that a disabled person with a disability has the resources available for the duration of his or her life.
Those with disabilities rely heavily on governmental assistance programs, such as Supplemental Security Income and Medicaid. Continued eligibility for these programs is important to the disabled person’s well-being. A traditional transfer of wealth can cause the disabled person to become ineligible for these programs. Special needs trusts can avoid this issue by providing benefits to those with disabilities while allowing them to remain eligible for SSI and Medicaid assistance.
What issues to families need to consider?
Special needs trusts present unique issues that the family must keep in mind. First, the assets of the trust cannot be considered an “available resource” to the disabled person if the family intends on relying on governmental support. Eligibility for governmental support is based on the “available resources” of the disabled beneficiary. If the disabled person has too much access to the trust funds, he or she may become ineligible for assistance. For example, if a special needs trust regularly makes distributions to the beneficiary for food and shelter, the amount of government benefits the beneficiary receives might decrease. Therefore, families should limit use of the trust funds to services and opportunities not covered by governmental assistance.
The family needs to consider several other issues. Among these are:
- Who will be appointed as trustee? Keep in mind that family members may be problematic due to conflict of interest issues and legal limitations in some states.
- How will the trust be funded? Third party funding is ideal, since it minimizes the risk that the trust will have to reimburse the government for care it provides.
- When will trust funds be disbursed to the beneficiary? Special needs trusts may help provide the child with recreational and vocational opportunities, for example.
Families caring for family members with disabilities should consider special needs trusts. They can be a valuable tool to give children access to the opportunities they deserve and the resources they need.