How Special Needs Trusts Work

How Special Needs Trusts Work
Provide Financial Support Without Jeopardizing Public Benefits

If you have a loved one with special needs, you might consider setting up a special needs trust  to help financially support that person after you have passed away. If you leave money directly to a person with special needs, that gift will likely affect their qualification for public benefits. Leaving money to a special needs trust allows you to improve the quality of life for your loved one, without jeopardizing eligibility for benefits.

Setting Up the Trust

The person setting up the trust places property in the hands of another person to manage the trust. Typically, the grantor of a special needs trust names himself or herself as trustee and another trusted person successor trustee. When the grantor dies, becomes incapacitated, or resigns; at that time the successor trustee takes over. 

The trustee is legally obligated to follow the terms of the trust document to use the property for the benefit of the person with special needs.

Finalizing and the Initial Funding of the Trust
The trust will take effect when it is signed and notarized. Not long after that, you can add cash to the trust by opening a bank account with a minimal deposit. At that point the trust is ready to be funded through the wills, trusts, beneficiary designations or other estate planning tools of those who want to help support the beneficiary with special needs. 

Administering the Trust
After the trust is funded, the trustee’s role becomes critical. The main job of the trustee is to use trust funds to support the beneficiary without jeopardizing government benefits.  They must have an understanding about how eligibility works and must be willing to keep up with the law.  The trustee also has many other duties including paying taxes, keeping records, investing trust property and keeping up to date with the beneficiary’s needs. 

How Trust Assets Can Be Used
Trust assets can be used for almost anything that is not illegal or contrary to the terms in the trust. Because the primary purpose of a special needs trust is to enhance the quality of life of the disabled beneficiary, the list of things that can be paid for is quite broad. Generally, trust funds can be used to pay for:

               - caregiving, such as a personal attendant or therapies 

               - experiences, such as travel or concerts

               - services, such as cell phone, internet or cleaning service

               - pet care

               - items, such as a computer, clothing or new furniture

Payments for food or shelter are more complicated because they generally trigger reduction in SSI benefits. However, it often still makes sense for trustees to use trust funds for food and shelter because there are exemptions and rules that make the trade-off worthwhile.
On the other hand, trust funds cannot be used for things that would make the beneficiary ineligible for their government benefits, such as large gifts of cash.

For more information on Special Needs Trusts or other estate planning options, call Elder Law of Omaha today to schedule a FREE 30 minute attorney consultation.

This article should not be construed as legal advice. Situations are different and it’s impossible to provide legal advice for every situation without knowing the individual facts.