As a Family Caregiver, you’ve probably heard about Special Needs Trusts (SNT), but do you know how to create a Special Needs Trust, the benefits of such a trust or other important points that you should consider before setting up such a trust?
A Special Needs Trust or Supplemental Need Trust is typically an irrevocable trust that is specifically designed to provide financial assistance for persons with disabilities. Usually, this type of trust can be used to supplement government benefits, such as Supplemental Security Income (SSI) or Medicaid (in the USA), and can also be used to pay for things like education, housing, and transportation.
This type of planning strategy can be very beneficial for Family Caregivers whose loved ones have high medical expenses and life expectancies.
Types of Special Needs Trusts
There are three general types of special needs trusts: self-settled trusts, third-party trusts, and pooled trusts.
1. Self-settled trust: This type of trust is set up by the person with disabilities (the beneficiary). The beneficiary’s assets are used to fund the trust. This type of trust is often called a “first party” trust.
2. Third-party trusts: This type of trust is set up by someone other than the person with disabilities. The funds for the trust come from someone else, such as a relative or friend. This type of trust is often called a “third party” or “custodial” trust.
3. Pooled Trusts: A pooled trust is a special needs trust that is set up by a non-profit association. The board of trustees controls the money held in trust and distributes it to people with disabilities as needed. This type of trust is often called a “Pooled Trust.”
Most often, Family Caregivers utilize third-party trusts. One of the main problems that Family Caregivers face is managing their own finances and the finances of the person with Down Syndrome. A SNT can resolve this problem by giving the Family Caregiver power to manage the finances of the beneficiary directly through a third-party trustee, designated in the SNT agreement.
The trustee manages the SNT on behalf of the person with disabilities, but must follow all guidelines delineated in the SNT agreement. This ensures that an SNT can be used for any purpose that will help maintain the best lifestyle possible for a person with disabilities. A SNT is a great way to protect your assets and your loved one’s assets, as well as protecting yourself from being held financially responsible for the expenses of someone else.
Who Is a Trustee?
Trustees play an important role in SNTs. A trustee has legal control over the funds in a trust. Trustees can be family members or friends who are looking out for the best interests of the person with Down Syndrome (the beneficiary). The trustee can also be a bank or other organization.
One of the central duties of the trustee is to understand what public benefits programs might be available to the beneficiary and how receipt of income, or provision of food or shelter, might affect eligibility.
Choosing a trustee can be difficult, but you need to choose one before creating a Special Needs Trust. A trustee should be someone you completely trust to make decisions for the beneficiary and must be responsible. The trustee must act in the best interest of the beneficiary and must keep accurate records of all transactions.
How to Choose a Trustee
Here are some guidelines to follow when selecting a trustee:
1. The person should live in the same community as the person with Down Syndrome, preferably close by. This will make it easier for them to see the beneficiary’s needs first-hand and increase the likelihood that they’ll know their goals, wishes, and preferences.
2. The person should also be willing to serve as trustee. You must ask prospective trustees if they are willing to take on this responsibility before you choose them to be your trustee.
3. This may seem obvious, but the person should have a lot of time on their hands to manage the responsibilities of being a trustee.
4. The person should have good communication skills, especially if they are required to interact with disability providers or other professionals on the beneficiary’s behalf.
5. Finally, the person should have solid financial management skills. They should be able to handle accounting tasks and invest money wisely to ensure that the beneficiary receives all the benefits and services which they’re entitled to.
Other Steps to Consider
Choosing a trustee is only one part of creating an SNT. Once you’ve chosen someone, there are several other steps that should be followed:
- Create a formal trust document. It’s important to make your wishes clear in writing. The trust agreement should include information such as how much money will be available to the beneficiary each year, who has access to that money, and what criteria must be met before the trustee can use that money for any reason.
- Create a budget. Once you’ve created your trust document, you’ll need to create an annual budget for the beneficiary. This information should be included in the trust document.
- Set up a savings account. A Special Needs Trust requires an ongoing source of money in order to fund the beneficiary’s expenses. It can be helpful to set up a bank account for this purpose, and make regular deposits into that account from your personal funds or from other sources such as SSI, pensions, or other governmental benefits. If this is not possible, you may wish to speak with a professional financial advisor about setting up a meaningful trust fund for your beneficiary.
Benefits of a Special Needs Trust
There are many reasons why Family Caregivers should set up SNTs. Here are a few of the most important reasons:
1. They can provide financial stability for the person with disabilities.
2. They can help the Family Caregiver manage the finances of the person with disabilities.
3. They can help the Family Caregiver provide for the future needs of the person with disabilities.
4. Special Needs Trusts can help the Family Caregiver protect the assets of the person with disabilities.
5. Special Needs Trusts can help to preserve government benefits. The trustee can use the funds in the trust to pay for things that are not covered by government benefits. This can help to ensure that the beneficiary is not left with a large gap in coverage and does not need to rely on government assistance as much.
6. They provide peace of mind for you and your family, knowing that your loved one will be taken care of in the event that something happens to you.
7. A Special Needs Trust can help reduce the amount of government benefits your loved one receives, which can save on taxes.
8. SNTs can prevent the trust fund from being included in the beneficiary’s estate. Once the funds are used to pay for “special needs”, they are no longer considered an available asset. When calculating eligibility for government benefits, only current income is taken into consideration- so, usually, any money remaining in SNTs does not affect how much money the beneficiary has access to each month. For example, in the USA, if there aren’t enough funds left in your loved one’s name after paying for their expenses, they could lose benefits such as Medicaid and Supplemental Security Income (SSI). In fact, federal law requires people who receive SSI to spend down almost all of their money before becoming eligible. If they have over $2,000 saved up when they apply for SSI, they won’t get any benefits until those savings are gone. By setting up a special needs trust, you can make sure your loved one has the resources they need without compromising their access to benefits like SSI and Medicaid.
Cons of a Special Needs Trust
- A Special Needs Trust can be expensive to set up.
- The Family Caregiver has to stay responsible for the person with disabilities.
- The money in the trust can only be used for certain things.
- The Family Caregiver might not be able to get government benefits for the person with disabilities.
How to Create a Special Needs Trust
There are a few things you need to know in order to set up a special needs trust:
1. The first step is to appoint a trustee. Determine if you will use a family member, friend, or professional to act as trustee.
2. You will need to determine the purpose of the trust. What will the money be used for?
3. You will also need to decide how much money you want to put into the trust.
4. You will need to name the beneficiary- this is the person who will receive the benefits from the trust.
5. You can, but don’t necessarily have to, make the trust irrevocable (meaning once it is created it cannot be changed).
6. If you set up an irrevocable trust, it may provide more benefits to the beneficiary; however, this may mean that the money cannot be returned to your estate should anything happen to the beneficiary.
7. Don’t forget that SNTs are administered differently than other types of trusts and there are some strict rules about managing them! It’s essential that you work with an attorney who understands what they’re doing before making any decisions regarding how much money goes into the trust and how often the trustee makes distributions.
8. One of the most important things to remember is that if you create a SNT, you must leave at least one other resource for your loved one in addition to the trust.
9. Finally, don’t forget that when you set up a SNT there are certain tax implications, and it may affect how he/she qualifies for certain benefits like Supplemental Security Income (SSI) or Medicaid benefits when they become adults!
How to Fund a Special Needs Trust
There are a few different ways that you can fund a Special Needs Trust:
- Include the trust in your will. This means that the money will be left to the trust after you die.
- Use assets, such as property or stocks, to put into the trust.
- Use life insurance policies to fund it.
What Happens When the Beneficiary Dies?
When the beneficiary of a Special Needs Trust dies, the trust will usually distribute its assets to a predetermined heir or organization. This can be done in a number of ways, including through a will or trust agreement. The trustee will be responsible for making sure that the distribution happens in accordance with the terms of the trust.
Seek Professional Advice
A Special Needs Trust allows the Family Caregiver to continue providing for their loved one even after they’re gone. This is possible because the trustee will be responsible for managing and spending the money in the trust according to the beneficiary’s specific needs.
You should seek professional advice from a local attorney and/or an estate planner to ensure that all laws are followed, your intentions are properly understood and your wishes are carried out to the betterment of your loved one.
