Special Needs Planning

When a loved one has a disability, providing for that person should become one of the central goals of their estate plan. In many cases (particularly where government benefits are involved), a loved one with a disability will need to have a special trust in the estate plan that is different from the trusts for the beneficiaries without disability. This type of trust is commonly referred to as a Special Needs Trust or “SNT.”

The purpose of SNT is to ensure the loved one continues to receives needed public benefits (such as Supplemental Security Income and Medicaid) while also receiving benefits from the funds held in trust to improve his or her quality of life. The exact terms of the SNT will depend on the source of the funds. Under current law, there exists the need to create either a “First Party” or “Third Party SNT” – each of which is discussed briefly below.

THIRD PARTY SNT (CREATED IN YOUR ESTATE PLAN)

A “Third Party” SNT, is as part of an estate plan. In this trust, the source of the funds going into the SNT is from a friend or family member. Estate planning SNTs have few rules. They must contain very particular standards about how distributions for the benefit of the beneficiary are to be made but otherwise are flexible tools. The trustee of this type of trust will work with the beneficiary to determine when he or she needs distributions and will determine whether or not a distribution will reduce or eliminate any government benefits received by the beneficiary prior to the distribution.

FIRST PARTY SNTS

The second type is called a “First Party” SNT, where the source of funds going into the SNT is from the disabled person himself or herself. This SNT has many complicated requirements that do not apply to the ””Third Party” SNT. Nevertheless, it can be useful to preserve the inheritance of a beneficiary for whom a Third Party SNT was not created, or to preserve the proceeds of a judgment or settlement. There are two types of First Party SNIs. One is set up by a parent, grandparent or the Court and can be drafted to allow the beneficiary to choose his or her trustee. Another, called a Pooled Trust is already set up and the beneficiary simply joins the existing trust with his or her own sub-account pooled together for investment purposes with other sub-accounts.

TRUSTEES

The SNT must have a Trustee. This person will have tremendous power and responsibility. In addition to deciding which distributions will be made and which will not be made, the SNT trustee must invest the funds prudently so they last for the lifetime of the beneficiary. Ideally, the trustee will have an understanding of which government benefits the beneficiary is receiving and the limitations on those benefits.

ADVISORY COMMITTEE

The SNT can also contain terms to establish an advisory committee. A group of people can be named to an Advisory Committee to advise the Trustee. The Advisory Committee is a formal body that can arrange itself in any convenient manner.

ADVOCATE OR CARE MANAGER

If your trustee is a corporation or a person who cannot personally ensure the beneficiary is receiving the best possible care, it may make sense to authorize or even require the Trustee to hire an Advocate or Care Manager. This person’s job is to visit the beneficiary and make recommendations about living arrangements and distributions. Advocates and Care Managers usually charge for their time by the hour.

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