A special needs trust, also known as a supplemental needs trust, can help take care of a disabled loved one.
What is a Special Needs Trust?
A special needs trust (SNT) is an irrevocable trust that is a structured, long-term financial plan for a minor or someone living with a disability. For those who are physically or mentally challenged, the SNT allows the beneficiary to use the property held in the trust for their benefit without forfeiting any government assistance. The trust holds and protects financial assets for the benefit of the disabled beneficiary. The trust can also receive contributions from a variety of sources, like gifts from family members.
Types of Special Needs Trusts
There are three main types of SNTs:
Third Party: these trusts are usually funded by family members to indicate that the assets funding the trust originally belonged to someone other than the trust beneficiary.
In contrast to a Third-Party SNT, Self-Settled SNTs are funded by assets that originally belonged to the trust beneficiary and are broken down into two types:
Non-Pooled Self-Settled: this trust is established for a single trust beneficiary and the Trustee can be anyone who is qualified to act as a Trustee.
Pooled Self-Settled: this trust is established for a single trust beneficiary, but the trust must be established and administered by a non-profit association.
Special Needs Trust Requirements
Both the Federal government and many states have established statutes that govern the creation and execution of a SNT. In addition, State Medicaid Programs as well as Social Security may have specific guidelines or requirements for a SNT.
Creating a Special Needs Trust
There are a lot of details that go into a SNT to make the trust work effectively, like statutory requirements and tax considerations. Hiring an attorney is best way to ensure the SNT is successful. You can set up a SNT on its own for the beneficiary or incorporate one into your own estate planning.
In creating the SNT, the grantor will need to name the trustees. This is the person(s) or entity that will be responsible for the management and administration of the trust.
Funding a Special Needs Trust
After creating the SNT, it will need to be funded. There is no minimum amount required to fund a SNT and it can be funded by cash, inheritances, lawsuits, insurance policies, etc. Money should be deposited into a Trust Bank Account.
A SNT may also contain other assets such as real estate, stocks, vehicles, jewelry, etc. Since a SNT is often set up to provide a cash flow to a beneficiary, the trustee of a SNT may be authorized to sell the trust’s tangible items to raise cash.