Special Needs Trust

What Is a Special Needs Trust?

A special needs trust (SNT) is a legal arrangement designed to hold assets for a person with a disability while allowing them to receive government benefits like Supplemental Security Income (SSI) and Medicaid. An SNT can hold assets such as cash, real estate, and life insurance policies. Depending on the type of SNT, others can contribute to it, including friends, family members, and charitable organizations. In other words, the person who establishes the SNT does not need to be the only person funding it.

The primary purpose of an SNT is to supplement, and not replace, government benefits. Since the person who benefits from an SNT does not own the assets in the trust, the assets do not count toward the limits set by government benefit programs. 

An SNT requires a grantor, trustee, beneficiary, and residual beneficiary. The grantor, often a parent or guardian, establishes and transfers assets into the trust. The grantor must select a trustee, which may be a friend, family member, bank, attorney, nonprofit organization, or other trusted individual. The trustee is responsible for managing the trust and determining how the funds will be spent on behalf of the beneficiary. The beneficiary is the person who benefits from the special needs trust.

The grantor must also select a residual beneficiary who will receive the funds remaining in the trust after the beneficiary passes away.

What Are the Pros and Cons of a Special Needs Trust?

Determining whether an SNT is right for your family requires weighing the pros and cons.

Pros

SNTs can offer the following benefits:

• Preserve eligibility for benefits: Unlike giving your child cash or assets directly, an SNT will maintain their eligibility for government benefits. That way, you can ensure your child has access to financial resources throughout their lifetime. 
• Protect assets entitled to the beneficiary: An irrevocable SNT protects your assets from creditors or liabilities. You can be sure the funds will only be used to support your loved one. 
• Know your loved one is supported: An SNT can bring you and your family peace of mind because you can know that your child will have the resources to live comfortably and explore their interests after you’re gone. 

Cons

Depending on your financial needs and goals, an SNT may not be the best option for your family. Consider these disadvantages:

• Costs: Establishing an SNT with an attorney will require drafting fees. Likewise, if you ask a professional to be your trustee, you’ll have to pay them to manage and administer the SNT. 
• Trustee selection: If you don’t want a professional to be your trustee, you must ask someone else to fill the role. It might be challenging to find a friend or family member with the time, financial knowledge, and willingness to be your trustee. 
• Lack of control: Since an SNT requires following spending rules, your child and the trustee will have limited control over assets. Depending on your financial goals, choosing an option that gives you more control may be better. For example, conservatorship or guardianship might be a better fit for helping your child financially if you want greater control over your assets.