What Do I Need to Consider When It Comes to A Special Needs Trust?

If you are the parent or guardian of a person with special needs or such a person, yourself, the first thing you need to know about a special needs trust (SNT) is that having one could be an absolute necessity. Even if the Covid-19 pandemic weren’t continuing to ravage the nation and put lives at risk, this would be true. After all, the principal aim of an SNT is to ensure that a person with special needs has reliable access to necessary care for their entire life. In a moment where any individual’s well-being can turn on a dime, this sort of security is paramount.

Understanding SNTs

In the simplest possible terms, an SNT is a legal instrument that ensures that a person with special needs maintains access to means-tested government benefits such a Medicaid, despite receiving an inheritance. Most often, an SNT is established by the parents or guardians of a disabled individual to ensure the individual continues to receive needed care after the parents pass. What’s more, a properly drafted SNT ensures that once the disabled individual passes the remaining assets held by the trust are not used to pay back the cost of care but preserved for future beneficiaries. An SNT is thus a powerful tool that provides the parent or guardian both the peace of mind of knowing their loved one will be cared for in their absence and that their hard-earned life’s work won’t disappear into the hands of government agencies.

Different types of SNTs exist and what has been said up to this point refers to the most frequently discussed variety: the “third-party” SNT, or an SNT funded using property originating from someone other than the beneficiary (that is, the disabled individual). An SNT may also be set up using the disabled individual’s assets (referred to as a “first-party” SNT), though this type is subject to different regulations and will be addressed further on.

Setting Up a Third-Party SNT

In the majority of cases, a third-party SNT is one created under the Will or Trust of the parent or guardian. Where this is the case, the trust does not come into existence until the parent or guardian dies and their “plan” begins. Upon this event the SNT is activated, so to speak, and assets destined for the disabled person are placed under the trust’s care. This technique ensures that no money ever ends up directly in the beneficiary’s name thereby preventing any possibility of them being disqualified from Medicaid or other such programs.

Frequently, it is not only the parents or guardians who wish to assist in caring for the person with special needs but other loved ones, too. In this instance, an SNT should be created straight away. Why? Because if the SNT described above does not exist until the parent or guardian dies, contributions from these other loved ones have no place to accumulate in the interim. A third-party SNT created during the parent or guardian’s lifetime to receive these gifts solves this problem.

The First-Party SNT

First-party SNTs are created when, say, a disabled individual gains assets (through inheritance or otherwise) that would, if received in their name, disqualify them from Medicaid benefits. Like their counterparts described above, different types of first-party SNTs exist and yet getting into the details is too much for the present piece. The most important difference between first- and third-party SNTs is that assets held by the former must go toward paying back the cost of care upon the disabled person’s passing.

Both third-party and first-party SNTs play an important role in ensuring an individual with special needs receives necessary care throughout their entire life. These legal instruments often work in tandem and form a crucial part of a robust estate plan. No short article (or even a long one) can address all of the complexities of the subject and yet it is one which cannot be ignored, especially in present times. To learn more about establishing an SNT for yourself or a loved one, don’t hesitate to reach out to our office.

Contact the Estate Planning Attorneys at the Law Firm of Christopher W. Dumm