Establishing a Special Needs Trust in Illinois
In decades past, parents with disabled children only had two options for their care: disinherit the child so that they could receive government benefits or leave enough money in a traditional trust and hope that the money is used properly for care. However, people today with children or loved ones who have disabilities are able to create another type of trust that leaves money for care while still allowing the person to receive governmental aid. This is known as a special needs trust (SNT).
What is a Special Needs Trust?
A special needs trust is an estate planning tool that allows people with disabilities to receive government benefits while still retaining the funds to supplement those benefits, increase their quality of life, and cover any extra expenses that may arise. A SNT can be established for a person with physical and mental disabilities or mental illness.
Illinois law governing special needs trusts can be found in multiple sections of the state’s code. Section 760 ILCS 5/15.1 states that, with exceptions, “A discretionary trust for the benefit of an individual who has a disability that substantially impairs the individual’s ability to provide for his or her own care or custody and constitutes a substantial handicap shall not be liable to pay or reimburse the State or any public agency for financial aid or services to the individual.” Section 405 ILCS 5/5-105, Section 120.347 of the Illinois Administrative Code, and federal law 42 USC 1396 also dictate the rules regarding special needs trusts.
Types of Special Needs Trusts
Illinois and federal law allow for the creation of three different types of SNTs. The trusts all function the same during the disabled beneficiary’s lifetime, but they differ in who creates the trust, who acts as trustee, and what happens to the remainder of the trust after the beneficiary’s death.
Self-Settled Special Needs Trust
This SNT is for a person who is disabled and under the age of 65. It is established for their benefit by a parent, grandparent, or legal guardian and is funded by assets belonging to the individual with a disability, or assets that individual is entitled to receive, when that individual is less than 65 years old. Upon the death of the beneficiary, any funds remaining in the trust must be paid back to the state for any Medicaid received, and the balance is distributed by the settlor of the trust.
Third Party Special Needs Trust
This SNT is for a person who is disabled at any age. It is established by someone other than the person with the disability and is funded by assets of the settlor of the trust. Upon the death of the disabled beneficiary, the remainder of the trust reverts back to the settlor, and the funds do not pay back the state.
This SNT is for a person who is disabled at any age as well. The trust is funded by assets belonging to the individual with a disability, or assets that individual is entitled to receive at any age. The trust may be created by the disabled person’s parents, grandparents, legal guardian, or the disabled individual. However, the trustee must be a non-profit organization and the individual joins through a “Joinder Agreement.” The funds are pooled for investment purposes, but each beneficiary has their own individual account.
Contact an Estate Planning Attorney
If you or someone you know is in need of establishing a special needs trust for a loved one in Northbrook, Skokie, Evanston, Glencoe, Glenview, or Highland Park, let the estate planning attorneys at Orlowsky & Wilson, Ltd. help. Call or contact the office today for a free and confidential consultation of your case.