One of the prime reasons for preparing an estate plan is to make adequate provision for the future needs of family members such as housing, health care and clothing. In families where one or more members are disabled and incapable of supporting themselves, a special needs trust (SNT) can be a very useful estate planning tool.
The basics of an SNT
Many government programs, such as Medicaid, Social Security, Social Security Disability Insurance, Supplement Security Income, and similar state programs, have been established to provide financial assistance for people who are physically or mentally disabled and unable to pay for their essential needs. Unfortunately, most of these programs have financial limits on eligibility. If a person’s income or assets exceeds these limits, the person will not be able to receive government aid.
SNTs were established to permit disabled persons to receive government assistance even if their personal financial situation would otherwise render them ineligible. An SNT can be established by the disabled person (a first party SNT) or a by family member or friend (a third party SNT). In both cases, assets deposited in the trust can only be used to pay for the beneficiary’s health care, shelter, clothing and other essential needs. The beneficiary or the party establishing the SNT must appoint a trustee to ensure that the use of trust assets complies with this limitation. For purposes of determining eligibility for government assistance programs, the assets in the SNT are not counted in calculating the beneficiary’s eligibility for these programs.
A third type of SNT is the so-called pooled SNT. A pooled SNT operates much like a mutual fund: the assets of a number of persons eligible for government assistance are deposited in a single trust, and the combined assets are used to save money on purchases or other expenses that meet the prescribed needs of trust members.
Anyone who is interested in establishing an SNT for a family member may wish to consult an experienced estate planning attorney for an evaluation of the financial situation of the intended beneficiary. An experienced attorney will also be needed to draft the necessary documents to establish the trust.