One of the central purposes of preparing an estate plan is to provide the needs of all of the children of the maker of the will. If one of those children happens to be disabled, the planning becomes even more complicated. One of the best – and most used – estate planning devices is the special needs trust. Many federal and state programs are intended to provide various kinds of necessary benefits to persons with disabilities, but many of these programs set very low income and asset limitations that exclude many individuals who may otherwise be eligible. Special needs trusts are intended to allow persons with relatively high incomes and asset valuation to qualify for these benefits without sacrificing either their income or their property.
How is a special needs trust established
A special needs trust can be set up by one of the three persons: the disabled person acting alone, the parent of the disabled person, or a third party (such as an aunt or uncle) who wants to bestow these benefits on a family member. The trust instrument must contain certain provisions specified by the various federal programs whose benefits are the goal of the special needs trust. The trust instrument must limit trust expenditures to the needs of the beneficiary, including housing, food, health care, and similar items. A special needs trust cannot provide coverage for custodial care by persons without medical training.
The need for a trustee
The trust instrument must name a trustee to administer the assets in the trust. As with any trust, the settlor (the maker of the trust) has great latitude in choosing a person to serve as trustee. The trustee should be a person with familiarity with legal and financial matters. The trustee can be an individual or an institution. Many banks offer professional trustee services for a fee based on the amount of assets in the trust.
The pooled special needs trust
Another option is a pooled special needs trust. These trusts operate much like a mutual fund – the assets from several individual special needs trusts are deposited in the pooled trust, and the trustee then makes investment decisions using the combined pool of assets. Distributions are made to individual beneficiaries using the same standards used for an individual special needs trust.
Anyone interested in a special needs trust may wish to consult with an experienced estate planning attorney to explore the benefits and shortcomings of setting up a special needs trust.