Establishing a Special Needs Trust

Joseph Bellinghieri LL.M.
June 5, 2008 — 1,236 views  

If you have a loved one who is disabled, establishing a Special Needs Trust can
supplement government assistance and
ensure long-term care.

A disabled child, spouse, or parent often has unique and long-term needs that are not provided for by Medicaid and other government benefit programs. To meet these needs, it may be wise to consider establishing a Special Needs (or Supplemental Needs) Trust. A Special Needs Trust can be used to set aside funds for many purposes, including medical care, therapy, education, training, companionship, and other benefits that public assistance might not fund.

Who Can be Helped by a Special Needs Trust?
Parents of disabled children are most likely to establish a Special Needs Trust. However, individuals planning for an institutionalized spouse or surviving parents can also establish such a trust. In addition, a disabled person can use a Special Needs Trust to manage and shelter assets that are available as a result of a personal injury award, inheritance, or life insurance. (Keep in mind that certain types of disabilities and injuries make your loved one more prone to future health problems, making the needs even greater.)

Setting up the Trust Document
When the trust document is drafted, you have the authority to determine
the following aspects:

  • Who the Trustee will be – often a family member, bank, attorney,
    or other individual
  • How the funds can be used
  • How much power the Trustee has in actually disbursing funds – either directly to the beneficiary or paying bills on their behalf
  • Whether to set annual limits on disbursements or limit the type of expenses covered – in order to preserve funds over a longer period

However, the wording of the trust document is critical, as is the assignment of authority. The beneficiary can have no power over the trust or its assets. And, the trust must be specifically created to be supplemental, providing only extras to the beneficiary that other benefits do not cover. The trust document should not provide for the health, welfare, and support of the beneficiary. If any of these words appear in the trust, then the Social Security Administration will view the trust as primary, and will insist these monies be spent first before providing the beneficiary with any Social Security benefits.

Trust Management
All trust assets are managed and disbursed according to the guidelines you specify in your trust document. Once the trust is established, all assets are under the control of the person or organization designated as Trustee. The Trustee is also bound to act in accordance with the terms of the trust document. The disabled beneficiary has no legal right to demand funds from the trust once it is established.

The Trustee will be required by the trust document to apply for any available benefits and should have no discretion to make any distributions that make the beneficiary ineligible for benefits. All decision-making regarding the determination of what special needs to fund and the amount and frequency of distribution must be vested exclusively in the Trustee.

The use of a Special Needs Trust should help to assure that public assistance is not denied, terminated, or reduced, as a result of the existence of the trust. However, the Trustee still must ensure the money is properly spent. The Trustee should keep the trust money out of the hands of the beneficiary by making payments directly to providers. Further, the trust should own large salable items such as furniture and allow the beneficiary to use them as needed.

In addition to the obvious provision of funds for the disabled beneficiary over a long term period, another key benefit of a Supplemental Needs Trust is that Trust funds are considered unavailable to the beneficiary until actually paid out by the Trust. Therefore, the Trust fund is not considered when determining the disabled beneficiary's eligibility for public benefits, such as Medicaid and Supplemental Security Income (SSI).

Funding a Special Needs Trust
Normally, the money to fund a Special Needs Trust comes from an insurance policy. In most cases a second-to-die policy is cheaper because benefits are unpaid until the second parent dies. Life insurance benefits are usually paid quickly and funds will be available when needed for the child. However, the funds needed for a Special Needs Trust can come from any source, such as personal injury awards or outright bequests.

Alternatives Pose Unacceptable Risks
Drafting and funding a Special Needs Trust is a much better alternative for planning and providing for your loved one than disinheriting them and hoping that siblings or others will step in and provide for any special needs. Here's why. Over time many things can change. The lifestyle, benevolent attitude of a sibling or family member, even their financial situation may change, leaving the disabled person exclusively at the mercy of public benefits.

In addition, a Special Needs Trust is preferable to giving the disabled person the funds outright, which may trigger a loss of public benefits and create a far greater financial burden. If and when their money runs out, the disabled person must then bear the entire risk of future changes in benefit eligibility requirements and uncertainty as to what benefits might or might not be available.

Continuing changes in the healthcare system today also create concern about how those changes may adversely impact disabled loved ones in the future. A Special Needs Trust can help alleviate some of those concerns, and create a more stable resource for providing for their needs.

Knowing that the person you care about is adequately provided for in the years to come, and that the assets you set aside in a Special Needs Trust are being managed according to guidelines you established in advance, can provide long-term peace of mind for all concerned.

MacElree Harvey
17 West Miner Street
Post Office Box 660
West Chester, PA 19381–0660
p | 610.436.0100
f | 610.430.7885
f | 610.429.4486
e | [email protected]

The following article is informational only and not intended as legal advice.
Speak with a licensed attorney about your own specific situation.
© Copyright 2006 MacElree Harvey, Ltd. All rights reserved.

Joseph Bellinghieri LL.M.

MacElree Harvey