What is a Special Needs Trust?


by Ira Brower~Special Needs Trusts can be an effective way for you to provide a secure and comfortable lifestyle for a child or other loved one with special needs. Parents and grandparents of a child with a lifelong disability, such as autism, have a special estate planning challenge. On the one hand, they want to provide the financial support that the child never may be able to provide for themselves. On the other hand, they want to protect the child’s eligibility for the full range of government support programs, including health care.

Over the past several decades in America, we’ve made tremendous strides in helping disabled, or “special needs,” individuals through governmental programs. Caring for those with special needs is an expensive and lifelong proposition. If you should have a child or other loved one with special needs, you may want to consider establishing a special needs trust as a solution. A special needs trust is a way to provide for the needs of an individual without putting in jeopardy his or her eligibility for government benefits.

There are basically two types of special needs trusts. The most common type is known as a “third party trust” because it is established by a third party for the benefit of the special needs individual. Parents and to a great extent, grandparents must focus on what happens upon their own deaths and how it will affect the special needs child or grandchild who may be on their own. The usual ways of providing benefit or support to a non-special needs child or grandchild through gifting or inheritance of substantial financial assets can have a real adverse effect on a special needs individual because it can jeopardize vital government assistance that may be available for his or her needs. Most government benefit programs, both state and federal, are need based, and are available only to those with limited assets.

So maybe you are thinking that the only way to be assured that this person will receive governmental assistance is to disinherit them? I don’t think so! Rather than disinheriting the special needs person and perhaps providing more of an inheritance to others with the thought of asking them to give the kind of support to the special needs individual they were getting from you is also not the answer. Establishing a special needs trust to protect the loved one in the parent’s last will and testament is more likely to be the answer.

Or, for that matter a special needs trust established under the will of a grandparent or another loving relative for the special needs individual. Using the parent as an example, the parent establishes a special needs trust under his or her will and it is funded upon death with the assets of the parent. Assuming the parent has two children, one-half of the estate is distributed outright to the non-special needs child and the other one-half is funded into the special needs trust or whatever the percentages the parent determines. Because the special needs beneficiary does not have the legal authority to control the trust assets, the assets typically are not counted as available resources when the special needs beneficiary makes application for governmental assistance. This trust is designed to supplement what the special needs beneficiary requires beyond what governmental assistance provides without disqualification of governmental assistance.

The other type of special needs trust is established with the special needs person’s own assets or assets derived from a court settlement due to an accident or injury from for example, medical malpractice. This type of special needs trust is commonly referred to as a “self-settled”, or “first-party”, trust. This is the most common type of special needs trust that we are asked to serve as trustee for. A well-constructed, carefully drafted special needs trust provides support for a loved one while still preserving access to certain government benefits. What I alluded to earlier, these trust assets generally may be used to provide a special needs individual with a wide variety of special or supplemental benefits, far beyond what the government can provide, such as personal care attendants, vacations, home furnishings, medical and dental expenses, education, vehicles, physical therapy, and even recreation.

The special needs trust is recognized by federal and state law as a legitimate approach to providing an enhanced quality of life to an individual without impairing access to government benefit. HOWEVER, and this is a big however, the government guidelines for special needs trusts must be strictly followed by the trustee or the special needs individual can be disqualified from these benefits.

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About Ira Brower

I have been in the financial service industry for more than 40 years primarily providing wealth management solutions for retired and soon-to-be retired individuals. I am President and Founder of Garden State Trust Company. Our clients depend on us for elder care solutions, such as; trust and estate planning, investment services, and lifestyle management. We also administer to “special needs” or “supplemental needs” trusts. www.gstrustco.com

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