Establishing a Special Needs Trust

In an effort to ensure that their assets and possessions go to certain family members or charities, many people create estate plans by establishing a trust or writing a will. Wills and trusts can also be used for other purposes, including establishing guardianship over a minor child or designating someone to hold power of attorney in the event that the testator is incapacitated. Those who have disabled relatives may also want to consider establishing a special needs trust (SNT), which can be used to provide goods and services that are not covered by government programs to disabled beneficiaries. Drafting a SNT requires compliance with specific procedural hurdles, so if you have questions or concerns about setting up a trust for the benefit of a relative, it is critical to contact an experienced estate planning attorney who can advise you on your next steps.

Purpose of the SNT

In most cases, assets held in a trust can disqualify a disabled individual from receiving government aid. However, when a trustor includes specific language identifying a trust as a SNT, the assets in the trust will not be counted against the beneficiary during a determination of eligibility for government aid. There are two main types of SNT, the first of which is referred to as a first party SNT.

First Party Special Needs Trusts

These types of trusts are funded by the disabled individual’s own assets, but still allow him or her to remain eligible for Medicaid or Social Security benefits. The one main disadvantage to first party SNTs is that when the beneficiary passes away, Medicaid requires that the trust pay back the funds expended by the program during the beneficiary’s life. However, if a beneficiary’s remaining assets are not enough to cover Medicaid’s bill, the program will absorb the remaining cost. In situations where there are enough assets in the trust to cover the cost of the bill and there are funds remaining, the balance can be distributed to family members.

Third Party Special Needs Trusts

The second form of special needs trust is referred to as a third party SNT. Unlike first party SNTs, these types of trusts are funded by someone other than the beneficiary. In most cases, the third party is a relative of the disabled individual, such as a parent or grandparent. For instance, the parent of a disabled child may include a provision in the trust stating that a portion of his or her assets will be distributed to a third party SNT for the use of a disabled individual. A third party SNT is not required to reimburse Medicaid upon the beneficiary’s death. Instead the balance of the trust will be distributed to named beneficiaries.

Contact an Experienced Estate Planning Attorney Today

If you have questions about forming a SNT for a family member, please contact one of the experienced Skokie estate planning attorneys at Orlowsky & Wilson, Ltd. Attorneys at Law by calling 847-325-5559 to schedule a free and confidential consultation with an experienced estate planning attorney.

Updated as of July 2019
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