A Special Needs Trust is a tool used to benefit an individual who suffers from a disability. A settlor creates the trust, a trustee manages the trust, and the beneficiary is the person who benefits from the trust. These trusts can be revocable or irrevocable. The trust owns the assets and the beneficiary does not own the trust. The trustee is the party with control over the trust assets.
One of the primary benefits of a special needs trust is that the beneficiary will not have to report the assets in the trust to Medicaid and lose their benefits. The beneficiary can use the trust assets to pay for things other than necessities, including wheelchairs, vans, household items, educational expenses, and travel expenses. Also, sometimes the beneficiary can use trust assets to pay for entertainment.
It is essential that you work with an estate planning attorney if you want to establish a special needs trust. Attorneys who specialize in this area of law will have a more comprehensive understanding of special needs trusts and how they are established.
Knowing If Someone Needs a Special Needs Trust
It is important to discern if a person will be unable to work due to their disability. Not every person who suffers from a disability will need a Special Needs Trust. Individuals who have limited mobility and will never be able to work are the most likely individuals who will need a Special Needs Trust.
People who were working but who later became disabled due to an injury often receive Social Security Disability Insurance (SSDI) not a Special Needs Trust.
First-Party Special Needs Trusts and Third-Party Special Needs Trusts
A First-Party Special Needs Trust receives funding through the special-needs person and their own assets if they are under the age of sixty-five. A court, legal conservator, or parent may establish a First-Party Special Needs Trust if the beneficiary is under the age of sixty-five.
A Third-Party Special Needs Trust is funded by someone other than the beneficiary. The trust corpus cannot be used to reimburse Medicaid expenses, and the heirs of the beneficiary will receive a larger inheritance.
Also, a Third-Party Special Needs Trust may be revocable or irrevocable. The funds contributed to a revocable trust are taxable, but the funds contributed to an irrevocable trust are not taxable. Discussing these tax advantages with an estate planning attorney will help you understand your legal rights.
The Duties of a Trustee in a Special Needs Trust
It is important to choose a responsible trustee who is reliable and trustworthy. You should also make sure to discuss their responsibilities with the Trustee. The following are some of the common duties of a trustee in a Special Needs Trust:
- Determine how to assign funds in the trust to satisfy the needs of the beneficiary
- File state and federal trust tax returns
- Document all spending by keeping reliable records
- Have a comprehensive understanding of Medicaid and Supplemental Security Income (SSI) laws
- Do not borrow the trust assets or otherwise use trust assets for the trustee’s own purposes
- Only spend trust assets for the beneficiary
- Manage and invest trust funds according to state law and the terms of the trust
These principles will ensure that the trustee does not do anything to harm the settlor, the trust, or the beneficiary.