If you have a child or care for an adult with a disability, you may wonder how they’ll be able to provide for themselves if you aren’t around. By creating a special needs trust, you can make sure that their future needs are met without putting their government benefits at risk of being terminated.

Contact Monk Law Firm today to speak with an experienced legal professional about creating a special needs trust, exploring funding options, and understanding the long-term requirements for managing and protecting it.

What Is a Special Needs Trust?

A special needs trust (SNT) is a type of trust that provides supplemental financial support for individuals with disabilities. It does not replace any government benefits they receive, such as Supplemental Security Income (SSI) or Medicaid, and is a key part of special needs planning. It is used for expenses that their government benefits don’t cover, including education, hobbies, transportation, and more.

One of the main benefits of a special needs trust is that, as long as specific requirements are met, it will not jeopardize the beneficiary’s eligibility for the government benefits they rely on. This is because the funds held in and distributed by the trust do not count as the beneficiary’s personal assets when calculating their eligibility. The trust owns the assets you place in the trust.

This solves one of the main issues many people with disabilities face. They need their benefits for vital things like medical care, but will lose those benefits if their income is too high or their assets are too great, which can force them to live on a strict budget. Special needs trusts can provide them with extras to enrich their lives.

Funding a Special Needs Trust

A big question many people have about special needs trusts is where the funding will come from. That depends on the type of trust you choose. The two main options are first-party and third-party special needs trusts:

  • First-Party SNT — These trusts are funded with the beneficiary’s assets. The beneficiary must be under 65 years old, have a disability, and meet other requirements established by federal law. After the beneficiary dies, the remaining trust assets are often used to reimburse Medicaid.
  • Third-Party SNT — These trusts are funded by someone other than the beneficiary, such as their parents, grandparents, other family members, or guardians. One of the primary benefits of a third-party SNT is that the funds can be passed on to other beneficiaries after the death of the primary beneficiary.

Selecting Assets to Fund the Trust

The specific assets that may be used to fund a special needs trust can vary greatly. They may include money from a savings account, investments, life insurance policies, or real estate and other personal property.

It’s important to work with an experienced special needs trust attorney when placing assets within the trust to make sure they won’t adversely affect the beneficiary’s other benefits.

Managing and Administering the Trust

After the trust has been funded, it’s the trustee’s job to manage and administer its funds. The trustee can be anyone other than the beneficiary, including a family member, close friend, a bank, a trust company, or a lawyer.

The person managing the trust is responsible for managing investments, distributing trust funds to the beneficiary, keeping detailed records about the trust, and making sure the trust remains in compliance with all applicable state and federal laws.

Choosing the right trustee is essential due to the importance of this role for the beneficiary’s financial security.

Investment and Asset Management

Assets placed within the trust can provide funds for the beneficiary throughout their life as long as they are carefully invested. The trustee should find a balance between investments that will grow the trust and those that are more risk-averse. And they should consider the liquidity of trust assets for beneficiary distributions.

It’s also important for the trustee to monitor the trust’s performance and regularly review the investments to determine whether changes are necessary. In some cases, changes in investment strategy may depend on the beneficiary’s specific needs.

Trust Distributions

Providing distributions to the beneficiary is a key role of the trustee. These distributions should supplement the beneficiary’s other benefits, not replace them. It’s vital that the beneficiary doesn’t simply use the trust to withdraw cash whenever they need it, as this could disqualify them from certain benefit programs, such as SSI.

To protect against potential misuse, the trust should include procedures for making distributions and outlining their impact on other benefits.

Reporting and Record-Keeping

The final task the trustee must handle is record-keeping. There must be detailed records of the trust’s activity, including the assets it holds, the investments made with those assets, the distributions made, and other relevant information.

These records are essential for making sure the trust remains in compliance with all laws related to the creation and operation of special needs trusts. If the trust falls out of compliance, the beneficiary could lose access to their government benefits.

Protecting the Trust Long-Term

It’s critical to make sure the trust will last for the beneficiary’s entire lifetime and to satisfy any additional obligations it may have, such as reimbursing Medicaid in the case of a first-party SNT.

A special needs trust isn’t something you set up once and forget about. It requires ongoing review and adjustments to help keep pace with inflation and withstand market changes.

Contact Our Charlotte Special Needs Planning Attorney

If you have a loved one with a disability that will impact their ability to work, a special needs trust can be a powerful tool to provide them with supplementary income without jeopardizing their eligibility for government benefits.

To learn more about how Monk Law Firm can help you create and manage a special needs trust, contact us today to speak with a highly qualified member of our legal team. We’ll walk you through your options for creating a trust and explain how it could interact with your loved one’s current and future benefits.