Special Needs Trust – What is it?

You may have heard the term “Special Needs Trust” before.  But do you know what it means?  What makes a Special Needs Trust different than other types of trusts?  In what sort of situation is it appropriate to have a Special Needs Trust?

A Special Needs Trust is intended to benefit someone who has a disability that is likely to cause them to rely on government benefit programs at some point.  The beneficiary may already be receiving government benefits when a trust is set up for them.  But that need not be the case.  Rather, if there is a good chance that benefits may be needed at some point in the future, a Special Needs Trust would be appropriate.

The trust agreement will contain a number of requirements and restrictions on how the Trustee is allowed to use the assets for the beneficiary.  A Special Needs Trust is also commonly referred to as a “Supplemental Needs Trust.”  That term aptly describes how a Special Needs Trust should be administered.  The Trustee will only be able use the assets to “supplement” the benefits the beneficiary is otherwise receiving.  To put it another way, the Special Needs Trust assets must not be used to replace the governmental benefits the beneficiary is receiving.  The purpose of the Special Needs Trust is to maximize whatever government benefits the beneficiary is receiving so that the Special Needs Trust distributions help improve the quality of life for the beneficiary.  

What sorts of expenses are “supplemental needs?”  Think of a one time, occasional expense that would make the beneficiary’s life a little better.  Examples might include a new mattress, an interactive computer learning system for an autistic child, or maybe an upgrade of a handicapped accessible vehicle.  The Special Needs Trust can pay for vacations that would otherwise not be possible.  Things like paying recurring health insurance premiums or nursing home fees would not be supplemental needs.  

Unfortunately it is an all too common occurrence that receiving an inheritance from a deceased loved one can be very detrimental to a beneficiary who should have had a Special Needs Trust.  When assets are left outright to them they may immediately lose their governmental benefits eligibility.  That means that they will have to spend that inheritance – possibly many thousands of dollars – on things that would otherwise have been covered by their benefit program, like health care, until the money is gone and they can then re-apply for benefits.

It is not only outright bequests that are a problem.  Assets left in a trust that do not contain the right language as to the Trustee’s powers can be equally dangerous.  In a typical trust that is not a Special Needs Trust the Trustee will often be directed to provide for the beneficiary’s health, education, maintenance and support.  If the Trustee has these directions the trust will not qualify as a Special Needs Trust.   

Is a Special Needs Trust a “complicated” estate planning device? Yes and no. For attorneys who have meaningful experience in the special-needs planning area it represents a very valuable planning tool for the beneficiary. What is crucial is that the trust is drafted to say precisely the right things in light of some very tricky benefit eligibility rules. The inclusion of one simple word in the wrong place on the agreement such as “health” or “support” can lead to the beneficiary losing an entire inheritance, as well as governmental benefits, which can be worth hundreds of thousands of dollars.  For many beneficiaries with special needs the stakes are way too high not to seek the advice of an attorney who really knows what they are doing.

If you have any questions about the issues presented above or care to discuss any other planning issues, please call us at 860-769-6938, visit our website at http://www.weatherby-associates.com/practice-areas/planning-child-special-needs/ or email us at info@weatherby-associates.com.

Special Trust in Connecticut