SPECIAL NEEDS TRUST
A Special Needs Trust is a very specific kind of trust that allows a person who is physically disabled, mentally disabled, or chronically ill to remain eligible for public benefit programs while also receiving the benefits of a supplemental fund.
We will answer the following questions about Special Needs Trusts below:
• Who needs a Special Needs Trust?
• What is a Special Needs Trust?
• Who can establish a Self-Funded Special Needs Trust?
• How much money can you put in a Special Needs Trust?
• When should you set up a Special Needs Trust?
• Who can manage a Special Needs Trust?
• What can funds in a Special Needs Trust be used for?
• Does a Special Needs Trust affect Supplemental Security Income (SSI)?
• Can money in a Special Needs Trust be invested?
• Does a Special Needs Trust pay taxes?
• Who pays taxes on a Special Needs Trust?
• Should a Special Needs Trust be Revocable or Irrevocable?
• What happens to the money in a Special Needs Trust upon death?
Who Needs a Special Needs Trust?
If you have a loved one with special needs, it may be beneficial to set up a Special Needs Trust to help support that person financially after you die. A Special Needs Trust is a very specific kind of trust that allows someone to remain eligible for public benefit programs while also receiving the benefits of a supplemental fund.
For families caring for a loved one with a disability, Special Needs Trusts can provide peace of mind. These trusts can be established with funds that belong to the person who is receiving public benefit programs or with funds that belong to someone else such as one or more family members.
Common challenges you may face are:
• Issues of guardianship
• Potential loss of control to the courts
• Endless challenges of reporting
• Trying to maximize the quality of life
• Providing a happy and stress-free life
• Maintaining the current medical and income benefits
What Is a Special Needs Trust?
A Special Needs trust is an estate planning device that allows an individual to continue to receive governmental assistance after inheriting assets or receiving assets through litigation.
This type of trust allows you to improve the quality of life for your loved one without jeopardizing their eligibility to receive government benefits like Medicaid or Supplemental Security Income (SSI).
A Special Needs Trust can be an essential part of making sure your disabled loved one continues getting needed care after you are gone.
When money is left to the special needs individual outright, the individual could place those assets in a Self-Funded Special Needs Trust (SF-SNT); however, failure to plan properly unnecessarily subjects those funds to the Medicaid payback that must be included in an SF-SNT.
When AFEPI creates your Special Needs Trust, it will successfully help you to exclude your special needs person’s inherited assets from the scrutiny of Medicaid and other government entities, meaning the government cannot come after those assets OR stop those benefits.
Who Can Establish a Self-Funded Special Needs Trust?
A “Self-Funded” Special Needs Trust (SF-SNT) must be created by a parent, grandparent, legal guardian or court to receive and hold assets (such as an inheritance, a lawsuit settlement, or gifts) that belonged to the person with special needs who is the beneficiary of the trust.
How Much Money Can You Put In a Special Needs Trust?
A child receiving public assistance benefits cannot accumulate or receive more than $2,000 in assets without risking the loss of those important and life-sustaining benefits. For that reason, a Special Needs Trust must to be set up carefully. AFEPI’s experienced special needs attorney will make sure it is done right. There is no limit to how much you may place in a Special Needs Trust.
When Should You Set Up a Special Needs Trust?
The sooner the better. A special needs trust provides financial support for your loved one without jeopardizing government benefits. If you have a loved one with special needs, you might consider setting up a special needs trust now to help support that person financially after you die.
If your loved one is to inherit from a Grandparent or a sibling, they need to ensure their assets are properly designated. We can help you do this.
Many times a Special Needs Trust is created when:
• the special needs person is receiving benefits
• the parents/grandparents want to preserve their contributions
• the parents/grandparents do not want their inheritance/gift to disqualify the person
• the disabled party owns property prior to the onset of the disability
• the disabled party has an income and savings prior to the onset of the disability, prior to receiving an inheritance or prior to receiving a court-mandated settlement
The decision to make the trust should be made prior to the onset of the disability or as soon as you have the ability to do so. In other words – TODAY.
Who can manage a Special Needs Trust?
A trustee can be the child’s parent or other relative, a trusted friend, or a professional such as a lawyer, accountant, trust company, bank or private professional fiduciary. As with any trust, reliability is crucial in determining who can and will manage the trust’s terms. The law imposes a duty on trustees to faithfully and honestly carry out the trust’s terms, but for the most part there is no court supervision.
What can the funds in a Special Needs Trust be used for?
Special needs trusts can pay for home and vehicle maintenance along with a variety of other items:
• a vacation
• a computer
• electronic equipment
• educational expenses
• ongoing monthly bills such as phone, cable, and internet services.
Does a Special Needs Trust affect SSI?
Funds held in a properly drafted Special Needs Trust will not affect Supplemental Security Income (SSI) or Medicaid benefits, but problems can develop when funds come out of a Special Needs Trust. Your AFEPI team will help you understand the entire process.We are available to answer questions before, during and after we create this special trust.
Can Money In a Special Needs Trust Be Invested?
Trustees of Special Needs Trusts have a duty to properly manage the funds in their care. However, most trustees, especially non-professional ones, are not sophisticated investors and they should not be directly managing the investment of large sums of money. AFEPI can provide assistance and advice as well.
Do Special Needs Trusts Pay Taxes?
Most Special Needs Trusts are third party trusts, and they are taxed as a pass-through entity. So the trust does not pay taxes on any income that it earns as long as that income is passed on to the beneficiary. If there is any undistributed income, the trust will pay taxes on that.
Who pays taxes on Special Needs Trust?
Generally, for income tax purposes, the Special Needs Trust will be taxed as a grantor trust with respect to the beneficiary during his or her lifetime. This means that all income, deductions, and credits with respect to the assets of the Special Needs Trust will be reported on the beneficiary’s individual tax return.
Should a Special Needs Trust Be Revocable or Irrevocable?
All first-party Special Needs Trusts must be Irrevocable. A third-party Special Needs Trust can be either Revocable or Irrevocable. In a revocable trust, the grantor can revoke or change the trust terms at any time. Only third-party Special Needs Trusts can be revocable.
What Happens To the Money In a Special Needs Trust Upon Death?
At the beneficiary’s death, in most cases, the Special Needs Trust will be terminated. The trustee is responsible for dissolving the trust and fulfilling the instructions laid out in the trust document. In addition, depending on the type of trust, the Special Needs Trust may owe money to the state if the person with special needs received Medicaid benefits during his/her lifetime.
In conclusion, the most important advice we can give is not to wait. Don’t wait until the benefits of your loved one are denied or retracted (if they are already receiving benefits).
Once a special needs person becomes the owner of an asset, it is too late to change. If a will-maker passes away and grants ownership to a special needs person, it is too late to protect it with a Special Needs Trust, putting all benefits in jeopardy. A conversation today will help you determine the immediate steps you need to take to protect your loved one. Your AFEPI professionals will provide answers to your questions and a clear path to asset protection with a Special Needs Trust.