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Planning for Special Needs Beneficiaries with a Special Needs Trust


When it comes to planning for the future, many people focus on their own financial needs and goals. However, for those who have loved ones with special needs, there are additional considerations to take into account. One important tool for planning for special needs beneficiaries is a special needs trust. Let’s explore the basics of special needs trusts and how they can be used to protect the financial well-being of beneficiaries.

What Is a Special Needs Trust?

A special needs trust is a legal instrument that allows you to provide for the financial requirements of a loved one with special needs without compromising their eligibility for government benefits such as Medicaid and Supplemental Security Income (SSI).

This arrangement ensures that the beneficiary receives adequate support that goes above and beyond these programs.

How Does a Special Needs Trust Work?

The legal arrangement of a special needs trust includes the following individuals:

  • A beneficiary who receives the benefit of the trust
  • A grantor who creates and funds the trust
  • A trustee who administers the trust

In some cases, a trust can include a “successor trustee” to administer the trust in the event that the first trustee is no longer capable of fulfilling the role.

Who Qualifies as a Special Needs Beneficiary?

A special needs beneficiary includes any individual who is disabled, though not necessarily incapacitated. The disability may be physical or cognitive in nature, resulting in specific limitations or impairment.

The Advantages of a Special Needs Trust

This type of trust offers numerous advantages, including:

  • Preserving government benefits
  • Protecting the grantor’s assets from the beneficiary’s creditors
  • Providing funds for additional care and services
  • Supplementing other benefits that the beneficiary receives
  • Enhancing the beneficiary’s quality of life

When properly administered, a special needs trust ensures that the beneficiary receives care that supplements and augments the support they receive through other support programs.

What Can Funds in a Special Needs Trust Be Used for?

A special needs trust can be used to fund anything that directly enhances the beneficiary’s well-being. Common examples include:

  • Medical expenses
  • Supportive technology and accommodations (ramps, assistive equipment, etc.)
  • Personal care
  • Education and/or vocational training
  • Food
  • Recreation and vacation
  • Pets

This provides a lot of latitude in how the trust is administered and offers the beneficiary more options for improving their overall quality of life.

What Are Some Common Terms?

Common terms of a special needs trust include:

  • Trustees aren’t obligated to provide for the beneficiary’s basic support
  • Distributions may not be made for needs that another program can satisfy
  • The trust can make up the difference if a government benefit cannot fully fund support

Additionally, terms can be set to cover expenses like those previously listed.

Rules for Special Needs Trusts

There are some rules for special needs trusts. These rules state that if you fund a trust with your own assets (this is sometimes called a “self-settled” or “first-person” trust), you’re bound by the following requirements:

  • You must establish the trust prior to age 65
  • You must qualify as “disabled” by the Social Security Administration
  • You cannot be able to earn substantial income

However, if the trust is funded by a third party, such as a relative, these rules don’t apply, and the money in the trust isn’t lost after the beneficiary’s death.

About Special Needs Trustees

Special needs trusts are administered by a trustee. These individuals don’t fund the trust (this is the role of the grantor) but simply manage it on the beneficiary’s behalf.

Who Should Be a Special Needs Trustee?

An ideal trustee must be capable of:

  • Recognizing and discharging traditional fiduciary duties
  • Undertaking ongoing analysis of the trust’s impact on government programs

In some states, family members cannot serve as a trustee since they’re often remainder beneficiaries and may be tempted to skimp on reimbursements to the beneficiary.

What Are the Duties of a Special Needs Trustee?

Among other things, special needs trustees must:

  • Invest trust assets to reflect the needs and risk tolerance of the beneficiary
  • Disburse income and principal for the sole benefit of the beneficiary
  • Disburse income directly to providers of goods and services when possible
  • Reimburse persons who have used their own funds for trust-covered expenses
  • Consult regarding the beneficiary’s current and anticipated needs
  • Provide accurate accounting and periodic reporting of receipts and disbursements
  • Assist the beneficiary with income tax reporting obligations
  • Verify that distributions don’t defray a legal obligation of another supporter
  • Determine whether government programs satisfy needs prior to disbursing funds
  • Delegate benefits eligibility issues to healthcare consultants

Additionally, a successor trustee may be in place to discharge these duties should the primary trustee be unable to fulfill his or her duties.

How Do I Make an Election to Provide for My Special Needs Beneficiary?

If you’re in the military, you can designate a trust as a beneficiary to support a dependent child considered disabled and incapable of self-support. At retirement, make an irrevocable special needs beneficiary election for payment to a special needs trust. Once you’re retired, you can submit a request to substitute the trust in lieu of the disabled child directly.

If something were to happen to you, coverage will continue provided a surviving parent or guardian elects to have annuity payments made to the trust. Any election must include the name and Taxpayer Identification Number (TIN) of the special needs trust.

It must also be accompanied by a statement from an attorney with an active license certifying that the trust will be created for the benefit of the disabled dependent child, and that it’s in compliance with all applicable federal and state laws.

Conversely, you can request certification from the Social Security Administration that the trust qualifies as an SNT under Title 42 of the US Code. Avoid naming the beneficiary directly, as doing so can disqualify him or her from other government assistance.

How Much Should I Fund a Special Needs Trust?

Because a trust is intended to provide for a scope of needs, it should contain no less than $100,000. In all likelihood, you’ll need closer to $1 million. You’ll likely require the contributions of supportive friends and family members to fully fund the trust.

Create a Safety Net for Your Loved Ones

To learn more about buying life insurance policies for your loved ones, contact our Life Insurance team online or by phone at 888-306-1688. Our team of licensed military life insurance professionals will offer you guidance and a free quote.

This article was originally published April 12, 2016.