Frequently Asked Questions about Special Needs Trusts
By James McCarten, Special Needs Alliance
1. What is a special needs trust?
A special needs trust (SNT) is a legal vehicle through which money or property can be designated for an individual with a disability without causing them to lose “means-tested” government benefits. Most often those benefits are Social Security Income (SSI) and Medicaid. An individual with special needs cannot have more than $2,000 in countable resources and still qualify for such programs, but assets held by an SNT are not considered “countable resources” for purposes of establishing eligibility.
2. Under what circumstances should you consider setting up an SNT?
Whenever someone with special needs is likely to need and/or qualify for government benefits, whether as a minor or as an adult, I encourage the family to immediately create an SNT. Even if it is not entirely clear that the individual will qualify for government benefits, I recommend protecting against the worst case scenario of not financially qualifying.
For most families, Medicaid is the most important public benefit even if, by most standards, the family seems to be financially secure. Paying for care and companionship for an individual with special needs can rapidly dissipate personal resources. And even with the family taking on significant responsibility for day-to-day care, an individual with special needs may not get the types of services, social opportunities and companionship desired unless they also qualify for public benefits.
3. What is the role of the trustee? What factors should be considered in choosing one?
Most families come to an initial special needs planning session expecting to name a family member as the trustee. However, because the trustee is responsible for making distributions from the trust in a manner that does not inadvertently disqualify the beneficiary from public benefits, not to mention, among other responsibilities, investing the funds, providing accountings and making appropriate tax filings, I strongly recommend that, instead, they hire a corporate trustee with significant experience administering SNTs. The fees charged by financial institutions are often much less than a family member would spend on an attorney in trying to comply with their legal responsibilities as a trustee.
I suggest to clients that, when interviewing professional trustees, they learn whether the organization has a large enough staff that the beneficiary doesn’t outlive their trustee. I also encourage clients to openly discuss their expectations concerning what the SNT will fund and the lifestyle they would like the beneficiary to have.
4. In what ways can trust assets be used?
SNTs are intended to supplement, not supplant, government benefits. As defined by the courts, Social Security Administration and Medicaid, SNTs should be used to enhance the beneficiary’s quality of life. As long as distributions are not used for food, maintenance or support, they can generally be made. Services, medical equipment and medical supplies not covered by Medicaid are good examples of how SNT funds might be used. But I believe that one of the most important questions is what makes the beneficiary happy. Does the beneficiary want a pet or service animal? What about a television, Internet services, computer games, gym membership?
5. What steps should be taken if you are interested in setting up a special needs trust? Whom should you contact?
As important as lawyers are, I believe that special needs planning is, at first, primarily a financial planning exercise. Families need to consider their financial plan over the lifetime of the beneficiary. For example, are there other children, and does the family want to assist them financially with college? How can the parents do this and also fund the SNT? What about the parents’ retirement? Those issues and more must be considered or their dreams for everyone in the family are unlikely to be realized. For that reason, I strongly urge my clients to work with financial planners familiar with special needs at the same time that we are developing the client’s estate plan and drafting the SNT.
Families should choose an attorney who works regularly in the special needs planning arena. The Special Needs Alliance website has a directory that can assist them in identifying nearby professionals. Local disability advocacy groups are also generally aware of lawyers within the community who have the necessary experience. Finally, parents should talk to other families to learn about their experiences with local attorneys.
6. What are some of the important points to keep in mind when setting up a special needs trust?
As noted above, I advise clients to build their legal structure on a strong financial foundation. For many families with young children, I suggest consulting a life care planner to understand what supports the family member is likely to need (and when) and what “extras” the family wants to ensure are available. If one is available in your area, I also suggest consulting a government benefits specialist, and many special needs attorneys are able to provide such information. And, of course, families must give serious consideration to their choice of trustee. As a last point, families must remember that parents and even siblings will not live forever. If the beneficiary needs a guardian/conservator, everyone should be included in the discussion about who will assume that role when parents have passed away. It is that individual who will eventually be responsible for coordinating services and care for the beneficiary from the team of advisors identified above.
7. How can the Special Needs Alliance help?
A wealth of information can be found on the Special Needs Alliance website, including articles, The Voice newsletter, a blog and a listing of special needs attorneys throughout the country.
8. Where can you go to learn more about special needs trusts?
In addition to the Special Needs Alliance, families should check with national and local organizations that focus on the beneficiary’s disability, such as Autism Now, The Arc and the Autism Society of America. A few books I recommend are:
- A Practical Guide to Estate Planning for a Family with a Special Needs Child, by Sebastian V Grassi
- The Special Needs Planning Guide, by John W. Nadworny and Cynthia R. Haddad
- Legal Planning for Special Needs in Massachusetts, by Barbara D. Jackins (The concepts discussed in this book will be useful for any family in any state.)
- One Step Ahead: Resource Planning for People with Disabilities Who Rely on Supplemental Security Income and Medicaid, by Roy Froemming
When introduced by his daughter, Kathryn, a young adult with autism, Jim becomes “my dad, the tax nerd”, a description he now embraces. An attorney licensed to practice in Tennessee, Georgia and Missouri, Jim has been recognized for his work in trusts, estate planning and special needs planning by his election as a member of the Special Needs Alliance and as a Fellow of the American College of Trust and Estate Counsel. Additional professional honors and recognition for his work in estate planning, tax law and non-profit law include being listed in both The Best Lawyers in America and Mid-South Super Lawyers. Jim serves on the Board of Directors of the Autism Society of Middle Tennessee, Inc., The Arc of Davidson County, Inc. and as a member of Tennessee’s Autism Team (preparing a statewide plan for a lifetime of support and services for individuals on the spectrum and their families.)