- Special Needs Alliance - https://www.specialneedsalliance.org -

Strategies for Funding a Special Needs Trust

By James McCarten, Esq. [1]

With all the daily responsibilities that parents juggle when one of their children has a disability (and, therefore, special needs), it’s tough to find time to plan for the future. But that’s what it takes when a loved one has a disability that may affect his/her ability to be self-supporting. It can be tempting to assume they’ll “grow out” of a condition or that Medicaid treatments can “fix” them, so it’s important to consult medical experts and care advisors early to develop realistic expectations about your child’s long-term capabilities and to estimate the likely costs of being, or becoming, able to live and thrive independently. As parents, we generally recognize that we are not likely to be around to care for our child for his/her lifetime.

At 18, your child may be eligible for SSI (Supplemental Security Income), which is the entry ticket in many states to a wide range of important public benefits, including Medicaid. Since many of these are means-tested programs, having assets in the child’s name usually disqualifies them from public benefit programs. On the other hand, government programs don’t cover many necessary expenses, so parents should plan for how they can fill the gap.

What Type of SNT?

The source of funding determines the type of SNT to be established. Assets belonging to the beneficiary must be allocated to a first party SNT (perhaps later, an ABLE account), while resources from anyone else should go to a third party trust. One of the important differences is that funds left in a first party trust when the beneficiary dies are subject to Medicaid claims for program expenses paid during the individual’s lifetime.

A third party trust can be established and funded during the creator’s lifetime (inter vivos) or as a testamentary trust, which is set in motion through the individual’s will or other estate planning documents. One advantage of an inter vivos trust is that it provides a vehicle for other family members and friends to contribute to the child’s welfare at any time, including before a parent’s death.

Finding the Funds

Families should always consider placing a portion of personal injury settlements into a first party SNT, since even a very large sum can quickly be dissipated by the needs of an individual with serious disabilities. For third party SNTs, family savings, inheritances and other financial gifts should be considered, each of which can then be invested in stocks and bonds for growth and protection from inflation. Ultimately, there are a number of strategies parents and families should consider:

Getting Help

These are complicated decisions, and families should consult professionals steeped in special needs law and financial planning, since they involve considerations outside the experience of many professionals. Advisors should understand benefits law, tax regulations and insurance options. At least one advisor should have a “big picture” understanding of the family’s goals in order to coordinate the efforts of other team members.

For most families, protecting a loved one’s eligibility for government benefits, while setting aside assets to supplement them, can make all the difference for future security. Remaining eligible for government programs can be important even for a child from a financially comfortable background. The prospect of funding an SNT can seem daunting, but if families begin early enough, there are helpful strategies to consider.