9 Things to Know About Special Needs Planning and Trusts

If you’re the parent of a child with special needs, you are well aware of the financial, emotional, and moral support that you must give your child. It’s a big responsibility and requires special advanced planning. A Special Needs Trust (SNT), also known as a Supplemental Needs Trust, is similar to any other trust, where a trustee holds assets for the benefit of a beneficiary. What makes an SNT different is that the trust will benefit the person with special needs while maintaining their needs-based government benefits. Here’s the gist of how it works:

Someone sets up the trust
A trustee manages the money
The beneficiary – the person with special needs – gets the benefit

Here are some key points to consider about a Special Needs Trust.

You Should Hire a Special Needs Trust Attorney to Create Your SNT

What is a special needs attorney? It can mean many things to many people, but generally, it means that the attorney has prepared hundreds or even thousands of special needs trusts to protect your child after you are gone. The skillset of a special needs planning attorney overlaps with that of a disability attorney. In short, special needs attorneys handle estate planning concerns for people with disabilities and their families.

You Should Understand the Difference Between a First-Party SNT and a Third-Party SNT

First-party special needs trusts are created using the beneficiary’s assets, such as those from savings, a personal injury jury verdict or settlement, an inheritance, or other sources of funds. For SNTs funded with government benefits, the beneficiary must be deemed disabled to maintain eligibility for the government benefit. These trusts are inherently irrevocable, meaning that once they are created, they cannot be altered or reversed.

Third-party special needs trusts are funded by sources other than the beneficiary, such as parents or grandparents, and can be either revocable or irrevocable, providing more flexible funding options.

Do Not Disinherit Your Loved One

Disinheriting your special needs child may protect their eligibility for government benefits, such as Supplemental Security Income (SSI), Medicaid, and low-income housing, as these programs have strict asset and income limits. However, your Long Island special needs attorney can help you evaluate if more sophisticated solutions exist. A special needs trust can provide for discretionary spending needs without interfering with your child’s eligibility for public benefits programs.

Choose the Right Trustee for the SNT

A critical consideration is the selection of the trustee for the special needs trust. The trustee you select must have “sole and absolute” discretion, a standard legal requirement when analyzing beneficiary eligibility for SSI or Medicaid. Having an adult sibling serve as successor trustee may seem like a natural choice, but it often causes family conflict. Other possibilities include naming a lawyer or financial institution as a trustee or co-trustee, naming a family member but also designating a trust advisor for assistance with investment decisions, or naming a trust protector who has the authority to remove a trustee acting outside of fiduciary standards. There are a number of variations that your Long Island special needs planning attorney can discuss with you.

Be Careful When Allocating Expenses and Taxes

How you allocate taxes and expenses among inheritors needs careful consideration. If you create a special needs trust during your life or upon your death, specify if your estate taxes either apply to the trust, will be charged against that trust, or will be allocated between the remaining shares. Requiring a special needs trust to pay some of your estate taxes reduces funds available to your loved one with special needs.

Be Aware of Permissible Trust Spending Rules

It is essential to stay informed about permissible trust spending rules. Permissible expenses for SNTs include:

Medical and dental care
Education and training
Transportation, like a car or a specialized van
Personal care services
Recreation, computers, or electronics
Home improvements or modifications

Spending from special needs trust funds cannot be used to violate the rules of government benefits. Failure to comply may result in the loss of these benefits and potential civil and criminal liability. Trustees must maintain thorough documentation, such as receipts and expense logs, to demonstrate that each purchase is exclusively for the beneficiary’s benefit.

Why Meticulous Recordkeeping Matters

Trustees must have accurate and detailed transaction records, including records about deposits, withdrawals, and other communications by letter, email or text. Keeping good records will strengthen your case in the event of a government audit or a family dispute.

Digitally organizing records, with consistent naming conventions and backups, facilitates effective trust management and legal defense.

Managing Disbursement Expectations

Everyone in the SNT administration chain must be clear on how distributions function. Taking the time to establish clear policies will reduce unrealistic expectations and minimize disputes. Trustees must communicate directly with beneficiaries and their caregivers about what the trust can cover and what it is not. It is essential to promote transparency regarding guidelines and decisions, ensuring trust funds are utilized effectively and last as long as needed.

The Downsides of a Trust

It is important to be aware that there are downsides to setting up a special needs trust. Of primary importance is the possibility that laws, regulations, or policies may change, affecting public assistance programs or trusts. What works today might not work tomorrow. This uncertainty can make long-term planning challenging for families seeking to secure the future of their loved ones. Here are some other potential drawbacks of special needs trusts, depending on how it is created:

There may be high costs and fees
There is limited control for the beneficiary
If not managed carefully, there is the potential for a loss of government benefits
There are few tax advantages
Changing regulations can cause uncertainty

Before setting up a Special Needs Trust, it’s crucial to weigh these disadvantages against the potential benefits and consider alternative options that might better suit your family’s needs.

Contact Our Office Today for Help

Here at Davidow, Davidow, Siegel & Stern, LLP, we have over one hundred years of experience helping people just like you manage their estate planning needs. We are deeply committed to providing excellent customer service while offering the most thorough and comprehensive legal guidance in New York. Contact us today to discuss your special needs planning.