Special Needs Trust for a Child

Matthew Harrison

Matthew Harrison is the founding member of Harrison Law and has been practicing law for nearly 25 years.

Special Needs Trust For A Child

Planning for the future is a crucial aspect of parenting, especially when your child has special needs. A special needs trust can provide a safety net, ensuring the child’s financial stability and care long after the parents are gone. If you are looking to create a special needs trust but want further information about the process, contact Harrison Law, PLLC, today by calling us at (480) 320-2310.

Understanding Special Needs Trusts for a Child

According to the Program Operations Manual System (POMS) by the Social Security Administration (SSA), a special needs trust, often abbreviated as SNT, is a legally sanctioned arrangement in which assets are placed into a trust for a beneficiary with special needs. The trustee, typically a person or an organization, administers the assets on behalf of the beneficiary. Unlike direct financial assets, these trusts do not jeopardize the beneficiary’s eligibility for government benefits such as Supplemental Security Income or Medicaid.

Why Is a Special Needs Trust Necessary?

An SNT becomes crucial as it allows individuals with special needs to preserve their eligibility for public aid while ensuring their financial upkeep, unlike a traditional trust or inheritance. Without an SNT, direct inheritance could disqualify them from these crucial benefits, leaving them financially unstable.

Critical Benefits of Establishing a Special Needs Trust

There are numerous advantages to creating a special needs trust. However, the primary benefits typically include the following:

Financial Security and Care Management

Establishing a special needs trust provides long-term financial stability. The trust, funded by parental or other benefactor’s resources, can cover expenses that typical government assistance might not cover – like personal care attendants, home furnishings, or even vacations. For example, if a child requires specific therapeutic equipment not covered by the regular insurance, this trust can step in to provide the resources necessary. Also, funds in a trust are managed by a trustee. This individual or organization makes important decisions about how the trust’s funds are spent, which can be particularly beneficial if the beneficiary is unable to make such decisions.

Protection of Government Benefit Eligibility

One of the most significant benefits of a special needs trust is that it can help the child remain eligible for government aid. Payouts from the special needs trust do not count as personal income for the child, as they are managed and distributed by a trustee. This ensures the child’s eligibility for government assistance based on income limits remains unaffected. For instance, if the child is eligible to receive medical aid from a government program, the funds from the trust can be used for additional healthcare needs without impacting the existing aid eligibility.

Types of Special Needs Trusts

There are various types of special needs trusts, usually distinguished by who funds them and how they operate. However, before choosing one of these trusts, it is important to understand what each one entails and which one aligns with your child’s unique circumstances.

First-Party Special Needs Trust

This type of trust is primarily funded with the assets of the person with special needs. These assets may include direct inheritances, lawsuit settlements, or other personal assets. However, the first-party special needs trust has a payback requirement, which mandates government reimbursement for the benefits received upon the beneficiary’s death.

Third-Party Special Needs Trust

Unlike the first-party special needs trust, a third-party special needs trust is established and funded by someone other than the beneficiary, typically a parent or other family member. This kind of trust has no payback requirement to the government upon the beneficiary’s death. Instead, the remaining assets can be distributed to other family members or as dictated in the trust agreement.

Pooled Trusts

According to the Social Security Administration, pooled trusts represent a type of trust managed by non-profit organizations. Here, the assets from many individuals with special needs are ‘pooled’ together for investment and management purposes, though each beneficiary has a separate account. These trusts can be advantageous for those with limited resources or lack suitable trustees while still providing strong financial management. However, these trusts come with their own set of rules and prerequisites and require careful consideration. To learn more about pooled trusts and other special needs trusts, contact Harrison Law, PLLC, and speak with our experienced Arizona estate planning attorney.

Frequently Asked Questions

If you are considering a special needs trust for your child, you likely have various questions about the process and what these trusts entail. Below are some prepared responses to these frequently asked questions.

How Do You Choose a Trustee For a Special Needs Trust?

Selecting the ideal trustee forms a critical step in setting up a special needs trust. Potential trustees include family members, friends, banks, or professional trust corporations. However, the trustee should possess integrity, reliability, financial insight, and a personal connection or understanding of the child’s needs. For instance, a bank or trust company may offer professionalism and expertise but may lack the personal attachment a family member or friend might bring. As a result, the trustee’s role is not a one-size-fits-all position, and the selection process often demands careful thought and consideration.

What Legal Documents and Provisions Are Required To Create a Special Needs Trust?

Specific legal documents must be created when setting up a special needs trust. These generally include a trust agreement, a letter of intent, and a pour-over will.

Trust Agreement: This outlines the terms of the trust, including the trustee’s powers and the child’s needs. The document’s language confirms that the trust is meant to supplement, not substitute, government benefits.
Letter of Intent: This letter offers a comprehensive overview of the child’s routines, needs, likes, dislikes, and medical care, guiding the trustee. Past and future aspirations for the child often find a place here.
Pour-Over Will: This document ensures that any remaining assets reach the special needs trust upon the caregiver’s death.

Furthermore, trust documents often include provisions outlining the trustee’s authority to distribute funds, instructions for winding up the trust, and alternative trustee options. They may also contain specific clauses addressing the beneficiary’s individual needs, which can help the trust better fulfill its purpose. It is also important to note that when creating a special needs trust, best practices imply that individuals should customize the trust agreement to the child’s particular circumstances and needs rather than using a generic template.

Contact Harrison Law, PLLC, Today To Learn More About Special Needs Trusts

A special needs trust is a crucial tool for securing the future of a child with special needs. It is a strategic way to ensure financial stability, manage funds effectively, and supplement government assistance. With careful planning and informed decisions, a special needs trust can provide peace of mind and a secure future for your child. For further information about special needs trusts and how they can help your child, contact the compassionate Arizona estate planning attorneys at Harrison Law, PLLC, today at (480) 320-2310.

This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.