How to Start a Special Needs Trust

special needs trust

In 2019-2020 there were 7.3 million students receiving special education services in the United States. Not every student that qualifies for special education services is unable to provide for their own care. As a parent, only you and your child’s medical professionals can make a determination on whether your child needs lifelong assistance.

Plan for your loved one’s care through a special needs trust. This prevents them from losing government benefits. They may lose Social Security (SSI) and Medicaid due to having cash assets.

Government rules do not deny special needs benefits to a person whose inheritance is in a special needs trust. Keep reading to learn about starting a special needs trust for that important person in your life.

What Is a Special Needs Trust?

Special needs trusts (SNT) provide for people who have physical and/or mental disabilities. The person’s disabilities must prevent them from providing for their own care. The purpose of the trust is to maintain the lifestyle and needs of the person when those adults who care for them are no longer able to do so due to age or death.

A special needs trust attorney will write the trust so that the beneficiary (special needs person) receives both trust funds and government funds. This is an important aspect of trust creation. In order to qualify for government benefits such as SSI and Medicaid, the recipient is unable to have more than $2,000 in cash assets.

The trust also provides protection against financial abuse. The trust gives specific instructions on the use of the funds. In addition to a trustee who manages the trust, the grantor may also select an advocate.

The advocate is someone who works closely with the trustee. They work together in deciding the disbursements necessary to maintain the beneficiary’s quality of life. They have a solid understanding of the grantor’s wishes and the beneficiary’s needs.

How Can a Special Needs Trust Be Used?

The trust provides supplemental income that improves the person’s quality of life. This may include paying for personal care attendants, home furnishings, out-of-pocket dental and medical bills. It can also be used for education, transportation, rehabilitation, and vacations.

How Does a Special Needs Trust Work?

The SNT is similar to a regular trust. It consists of three parties;

  • Grantor—the person who creates the trust and funds it with money and assets
  • Beneficiary—the special needs person
  • Trustee—the person who manages the trust on behalf of the beneficiary

The trustee selected has sole discretion on how the funds in the trust are managed.

If the Special Needs Person Receives an Inheritance or Settlement

If the special needs person is the recipient of a large settlement claim or inheritance, creating a special needs trust will protect those assets. The trust can be set up to provide financial security through regular payments while protecting the person from losing their government benefits.

Contact a special needs trust attorney immediately if your special needs loved one receives a cash settlement or inheritance of $2,000 or more.

How to Set Up a Special Needs Trust

The first decision is the amount of money to place in the trust to meet your goals. Considerations include the level of care the person requires, their age, and whether you want to make sure the fund lasts their entire life.

When making these decisions you may want to consult with their doctors to determine how likely it is they will be able to provide for their own care, live alone, or maintain their own personal health and medical care.

Your special needs trust attorney will help you determine the appropriate type of trust. This may be a first-party, a third-party, a sub-trust of a parent’s trust that becomes active upon the death of the parent, or a stand-alone trust.

Types of Special Needs Trusts

There are two main types of special needs trusts, first-party trusts, and third-party trusts.

A first-party trust uses assets that belong to the special needs person. This usually happens following the special needs person receiving a court settlement or an inheritance of property or money.

Third-party trusts are normally set up by the person’s parents to plan for their child’s care following their death. Siblings, grandparents, or any other person may also create a third-party special needs trust.

There is also a third type of trust, though not as popular because it removes family control of the funds. Pooled special needs trusts are created through the pooling of assets from several relatives or friends. The pooled assets of the trust are put into a large investment fund.

The difference between this and other special needs trusts is that it is established through a non-profit organization. That organization administers the pooled trust and makes all investment decisions, determines who is trustee, and handles taxes.

Upon the beneficiary’s death, money that remains in a pooled trust goes to repay the State Department of Health Care Services for any debt. A percentage of the balance also goes to the nonprofit. If there are any remaining benefits after these two expenditures, it will go to whoever the person selected as the time the trust was established.

Unlike a pooled trust, if you use a first-party or third-party special needs trust, there is no required reimbursement to the state when the beneficiary passes away. The grantor of the trust designates a beneficiary for any remaining funds.

Fund the Trust

The trust becomes effective when signed and notarized. Once you have the trust’s tax identification number from the IRS you may begin funding the trust. This can be done through wills, beneficiary designations, living trusts, and other estate planning.

Understanding how to properly fund the trust is critical to having it accomplish your goals. There are numerous options, including the transfer of real estate, titled property, untitled personal property, bank accounts, fund securities, and business interests.

Anyone may contribute property to the existing trust. Other family members or friends who wish to provide for the special needs person upon their death may also establish a third-party special needs trust. There is no limit on the number of trusts that designate the same beneficiary.

Schedule a Special Needs Trust Consultation

A special needs trust is a critical part of estate planning when you are the parent of a disabled person. Call the law firm of Smith Baird at (912) 352-3999 to schedule a consultation regarding a special needs trust.

Our attorneys are knowledgeable and follow special needs trust rules to make sure your loved one’s government benefits are preserved. Don’t hesitate, contact us today to make sure your loved ones are provided for.


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