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Special Needs Trust Right

Is a Special Needs Trust Right for your Child?

Special Needs Trusts (SNTs) can play a critical role in preserving the financial and personal well being of a person with disabilities. But how do you know if an SNT is right for your child? While you’ll need to consult a qualified attorney to determine exactly how this type of trust would work in your situation, knowing some SNT “basics” is an important part of planning for your child’s future.

What Is An SNT — and How Can It Help?

The SNT is a trust designed to hold supplemental funds for the benefit of an individual with disabilities who receives “means-tested” public benefits such as Supplemental Security Income (SSI). Regardless of your financial circumstances, your child may qualify for SSI as an adult if he or she meets the requirements of the Social Security Administration (SSA), including having no more than $2,000 in assets (with certain exceptions).

SSI opens the door to important benefits like Medicaid, Section 8 housing, rehabilitative care and transportation assistance, but it provides only a small monthly income. Most parents want to supplement those funds to enhance their children’s quality of life, but doing so directly will place public benefits in jeopardy. That’s where SNTs come in.

Parents can fund SNTs and have the assets used to enrich their children’s lives. Because assets held in a properly drafted SNT are owned by the trust, not the beneficiary — and distributions from the trust are paid out to third parties, not to the beneficiary — SSA does not count the assets in an SNT when determining eligibility for SSI.

How Do You Create An SNT?

While many attorneys handle trusts and estate planning, it is very important for families who decide to establish SNTs to retain the services of an attorney. Some attorneys have expertise in the laws governing SNTs, which are state-specific and may be subject to frequent change, and can help families coordinate the creation of trusts and wills to meet both special-needs and other estate-planning goals.

How Can You Fund an SNT?

SNTs can be funded with many types of assets via gifts or bequests. Some parents prefer to establish an SNT during their lifetime so they — and others — can contribute when and how they wish. In some cases, parents delay the funding of the trust until after their death, naming the SNT as a beneficiary of retirement plans, investment accounts or other assets. Still others purchase life insurance policies, such as “second-to-die” policies, payable to the SNT. A financial advisor experienced with special needs issues can help a family determine the best way to fund an SNT without sacrificing other important financial goals.

Who Will Manage Your SNT?

Like other types of trusts, SNTs must be overseen by trustees. These individuals (or entities) are responsible for such functions as record keeping, tax filing and the investment and distribution of trust assets. SNT trustees also have numerous responsibilities related to the beneficiary’s day-to-day well being.

Nearly 90% of families that establish SNTs name a parent or other relative as trustee. But given the complexity of SNT trustee responsibilities, and the potential for a seemingly small error to result in the termination of public benefits, this may not always be the best choice.

One alternative is naming a disability and elder law attorney as trustee — or as co-trustee or successor trustee. Parents that retain professional trustees can remain involved in trust oversight by becoming Trust Protectors. This role allows them to monitor the trustee’s actions and ensure they are consistent with the intent of the trust, while not assuming the fiduciary responsibility of the trustee. Parents also may opt to appoint — and participate in — a Trust Advisory Committee. Members of this committee share fiduciary responsibility with the trustee and weigh in on most routine disbursement decisions.

How Will the SNT Funds Be Used?

While the purpose of establishing an SNT is to enhance the lifestyle of an individual with disabilities, how disbursements from the trust are made is carefully regulated by the SSA and the IRS. Improper disbursements can result in a loss of or reduction in monthly benefits for the person with disabilities. To avoid this consequence, trustees must disburse payments only to third parties — providers of goods and services — and exclusively for expenses not covered by SSI.

What is a Texas Special Needs Trust?

A Texas Special Needs Trust (also known as “supplemental needs” trusts) allows a disabled beneficiary to receive gifts, lawsuit settlements, or other funds and yet not lose his or her eligibility for certain government programs. Such trusts are drafted so that the funds will not be considered to belong to the beneficiary in determining eligibility for public benefits.

As their name implies, special needs trusts are designed not to provide basic support, but instead to pay for comforts and luxuries that could not be paid for by public assistance funds. These trusts typically pay for things like education, recreation, counseling, and medical attention beyond the simple necessities of life. (However, the trustee can use trust funds for food, clothing, and shelter if the trustee decides doing so is in the beneficiary’s best interest despite a possible loss or reduction in public assistance.) Special needs can include medical and dental expenses, annual independent check-ups, necessary or desirable equipment (such a specially equipped vans), training and education, insurance, transportation, and essential dietary needs. If the trust is sufficiently funded, the disabled person can also receive spending money, electronic equipment and appliances, computers, vacations, movies, payments for a companion, and other self-esteem and quality-of-life enhancing expenses.

Often, special needs trusts are created by a parent or other family member for a child with special needs (even though the child may be an adult by the time the trust is created or funded). Such trusts also may be set up in a will as a way for an individual to leave assets to a disabled relative. In addition, the disabled individual can often create the trust himself, depending on the program for which he or she seeks benefits. These “self-settled” trusts are frequently established by individuals who become disabled as the result of an accident or medical malpractice and later receive the proceeds of a personal injury award or settlement.

Special Needs Trusts

A special needs trust- sometimes called a "supplemental needs trust" makes it possible to appoint a trustee to hold property for the benefit of your disabled child after you'e gone. A special needs trust provides for the needs of a disabled person without disqualifying him or her from benefits received from government programs such as Social Security and Medicaid.

Government Benefit Requirements

In order to qualify for the Social Security Administration's Supplemental Security Income Benefits, ("SSI"), a disabled adult can't hold more than $2,000 in assets, excluding a car and a home. SSI benefits, which average about $400 per month, must be spent on food, clothing and shelter expenses.

Eligibility for SSI makes a disabled person eligible for food stamps and Medicaid, which pays medical expenses, nursing home care and mental health services. Medicaid eligibility also makes a disabled person eligible for many local community services, as well.

As these benefits add greatly to a disabled person's ability to care for him or herself, you wouldn't want to give your disabled child property that would disqualify him or her from receiving these benefits.

Bequeathing To Other Family Members

While it might seem like a good idea simply to leave a set amount of money to your disabled child's sibling or other close relative, with the understanding that the money will be spent on the disabled child, this often backfires:

The money can fall prey to judgments or divorce settlements against the relative, or can be lost in bankruptcy

The relative can't be legally forced to use the money to benefit the disabled person

The relative to whom the money is left may be taxed at a higher rate than the disabled child or a trust

Should the relative die before the disabled child, the money would go to his or her heirs

A special needs trust avoids these potential problems without putting an emotional strain on family relations. Monthly SSI benefits can be spent on food, clothing and shelter. The special needs trust money can then go toward little extras that make your disabled child's life more rewarding, such as:

Picking a Trustee

To be effective, a special needs trust document:

Funding A Special Needs Trust

A special needs trust can be funded through a will or gifts from relatives and friends made directly to the trust instead of to your disabled child. Many special needs trusts are funded through "survivorship" or "second-to-die" life insurance policies that cover both parents and pay out on the death of the second parent.

When your disabled child is to receive an inheritance or money from a lawsuit, it's a good idea to set it up ahead of time in what's called a "self-settled trust," to avoid losing Medicaid eligibility. A parent, grandparent, legal guardian or court can establish the trust, with any money left after your child's death going to the state.

Letter of Intent

One way to be clear about what you intend for your disabled child's future is to make a "Letter Of Intent" to be given to his or her trustee at the time of your death. This document gives family members and others the benefit of your knowledge about your child's capabilities, needs and fears, and can be updated periodically.

A letter of intent can include: