Special Needs Trusts


What is a Special Needs Trust?

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A special needs trust is created to supplement the needs of a person with a disability. At the same time, the trust allows that person to be eligible to receive governmental benefits such as SSI (Supplemental Security Income) or TennCare/Medicaid. Even if your loved one is not currently receiving governmental assistance, placing an inheritance in a special needs trust is critical to ensuring that they qualify for those benefits should they apply. One of the most critical parts of a special needs trust is that it must state that the assets of the trust can only be used to supplement the beneficiary's needs. This type of trust cannot be used for the beneficiary's day-to-day living expenses.

Example of How a Special Needs Trust Works

Mitch and Abby are married and have one child together, Lamar, who has a mental disability. Lamar is 18 years old and due to his disability he will never be able to care for himself. He will always need a caregiver. Lamar has qualified for SSI and Medicaid and his parents do not want Lamar to lose those benefits if they pass away and he receives a large inheritance. They want Lamar's inheritance to be used to supplement those governmental benefits. So Mitch and Abby speak with a special needs trust attorney to guide them through the process of creating a trust  at their death.

The lawyer designs a special needs trust that would allow the trustee to use the money for Lamar's supplemental needs at the discretion of the trustee. What this means is that Lamar would have no control over how the assets are used. Further, the trust states specifically that the assets in the trust cannot be used in such a manner which would disqualify Lamar from receiving SSI and Medicaid. Mitch and Abby decide to name Mitch's brother Ray as trustee of this trust. If Ray cannot serve, they have named a corporate successor trustee as the back up. At Lamar's death, they decide the remaining assets of the trust will be conveyed to Vanderbilt Children's Hospital. 

By creating this type of trust, the child will qualify for vital governmental programs and be able to have extra money if needed for in home healthcare, medical devices, furniture, vacations, or other such supplemental needs.

Appointing a Trustee of a Special Needs Trusts

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When considering who should be appointed trustee of a special needs trust, it is important to consider someone fairly young. Chances are that if the beneficiary of the trust is a child then the administration of the trust could last for quite sometime and you want someone in place that will be around for a while. Additionally, consider naming a corporate trustee as a back up such as a trust company that has experience in handling special needs trusts. Corporate trustees are important to bear in mind as they will likely be around for much longer than any individual person serving as trustee and can continue to look after the beneficiary in perpetuity.  

Also, consider the physical and mental burden on the trustee to care for a disabled person. Before deciding on a trustee, be sure to speak with the proposed trustee to ensure they are willing to serve. Explain to them in detail the significant responsibility they are to have if they chose to serve as trustee. 

Consider Making Distributions Unequal

If your estate plan has multiple beneficiaries and one of them requires a special needs trust, think about making the distributions unequal. Here's why: A disabled person most likely will need greater resources than a healthy individual over the long run. As such, to guarantee that beneficiary with a disability has enough assets over time, consider providing more to this beneficiary than the others. After all, you can always name the other healthy beneficiaries as the ultimate recipients of the trust in the event that the disabled beneficiary passes away.

Can a Trustee of a Special Needs Trust Be Compensated?

Yes, a special needs trustee can be compensated. If an individual is serving as trustee they can be compensated based on an hourly rate or based upon a certain annual percentage of the value of the trust. A corporate trustee is always going to take a fee to serve as trustee. Their fees usually range from 1% to 1.5% of the value of the trust per year. Note that many corporate trustees have minimum dollar thresholds the trust must meet in order for them to serve. For instance, it is unlikely that a corporate trustee would serve if the trust had a total value of a few thousand dollars.

Use of the Assets of Special Needs Trust 

So if the assets of a special needs trust cannot be used for day to day living expenses, what can the funds in a special needs trust be used for? This can be a tricky question and you want to be sure that you consult with an estate planning attorney if there is a question about how the trust assets should be spent. Below are a list of assets that can be used to supplement the needs of a beneficiary without costing them their government benefits:

  • The home of the disabled person - assuming that the individual lives in the home or intends to return home if in a nursing home 
  • A vehicle
  • Utilities 
  • Furniture and home furnishings 
  • Personal items such as jewelry, heirlooms, or clothing
  • Education expenses 
  • Travel expenses
  • Entertainment expenses 

Self Settled Trusts

When an individual with a disability receives or inherits assets it could disqualify them from SSI or Medicaid. Sometimes the individual was healthy but ended up in a terrible car accident that left them disabled. Other times, the individual has developed Alzheimer's disease or ALS later in life. What happens if a disabled person receives an asset that would disqualify them from governmental benefits? There are two types of trusts that can be created in these circumstances that would allow the individual to keep their benefits: the Payback Trust and the Pooled Trust. 

Payback Trust

A payback trust allows a parent, grandparent, or legal guardian of a disabled family member under the age of 65 to create a trust for the disabled person. This trust will hold certain assets belonging to the person and still allow them to qualify for government assistance. The catch is the trustee must reimburse the government for all assistance provided to the disabled individual after the termination of the trust. 

Pooled Trust 

Unlike a Payback Trust, the government does not have an interest in the trust assets when the trust ends. The way a Pooled Trust works is the disabled person gives their assets to a large "pooled trust" of similarly situated individuals. The disabled individual receives a benefit of the assets for their life. Upon the termination of the trust, the assets stay in the pool to help other disabled persons.

Call Special Needs Trust Attorney John Crow

Planning your estate for a family member with a disability can be challenging. If you are considering what assets to leave a disabled individual consider placing them in a special needs trust. This trust can be used to keep them eligible for government benefits while at the same time supplementing their needs. Give Trust  Attorney John Crow a call today at 931-218-7800 to schedule an appointment to discuss the issues you face.

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