Planning for a Loved One with a Disability: Special Needs Trusts

A special-needs trust, also known as a supplemental-needs trust or a disability trust, is a trust established for an individual with a disability who qualifies for government benefits from that disability, in order to provide income supplemental to the government benefits without rendering the individual ineligible for the benefits. Special-needs trusts are an important tool because, once a person has a certain amount of assets, he or she will become ineligible for his or her government benefits. However, a friend or relative of a disabled individual, or that individual him or herself, may want to ensure that there is sufficient income available in order to maintain a certain quality of life. A relative of an individual with special needs may also be interested in establishing a special-needs trust because the monetary costs of that person’s care can be high, particularly on an extended or long-term basis.

Although the government benefits may be the primary method of covering the basic costs for a person with a disability, a special-needs trust may be used by the beneficiary to pay for more than the basic necessities, and the trust can provide a safety net for the beneficiary. The beneficiary of the trust is not permitted to be the trustee, and whoever establishes the trust should provide the trustee with considerations that he or she should take into account when making decisions for the beneficiary of the trust.

A special-needs trust may be set up for a child with a disability, or one may be set up for an adult who is under 65 with a disability. In certain circumstances, the family may not realize that a special-needs trust is suitable until adulthood, for example, if an individual develops a disability later in life, or if an individual with a disability suddenly receives assets that would render him or her ineligible for government benefits. The trust can be set up using a beneficiary’s own funds, or it can be set up using other funds. However, if the trust is a self-settled trust, i.e., paid for using the beneficiary’s assets, then upon the death of the beneficiary, the funds that are remaining in the special-needs trust are required to go to the State to reimburse it for medical benefits provided to the beneficiary over his or her lifetime. A third-party trust may be a testamentary trust, created under the friend or relative’s Last Will and Testament, or it can be an inter vivos trust. An inter vivos trust may be preferable if there are a number of friends and family members who may wish to contribute to the trust. However, it may be safer under Federal Law to create a testamentary trust in order to ensure that the funds of the trust do not count as assets of the person receiving government benefits.

If you believe that you are someone you care for is interested in establishing a special-needs trust, it is important to speak with an attorney regarding the qualifications necessary to establish a special-needs trust. The team at Chepenik Trushin LLP is knowledgeable and skilled in trust issues. Please feel free to contact us for an initial consultation.