What to Consider When Creating a Special Needs Trust

By Katherine N. Barr, Esq.

Many parents put off the process of setting up a special needs trust (SNT) for a child with disabilities. They worry about complexity and cost and that they’ll be faced with difficult decisions. They may finally be prompted to call an attorney by attending a workshop or because they’ve heard of someone who lost government benefits through mishandling of their finances. There’s no doubt that there are important choices to be made when framing an SNT. But an experienced special needs attorney can ease the process, laying out families’ options, based upon their particular circumstances.

Since the SNT’s provisions should be consistent with the child’s life care plan, I begin by asking about the individual’s interests, abilities and challenges. How do the parents envision their loved one’s life unfolding in terms of career, living arrangements and lifestyle? After that I move on to the rest of the family, learning if there are other children or multiple marriages to be considered.

After explaining which government benefits may be available to the child, I learn what assets the parents have to work with–often a mortgaged home, employer-provided group life insurance and a retirement account. I often suggest that they obtain life insurance coverage that’s not employer-dependent.

Parents must decide what portion of their estate to bequeath to a family member with disabilities, and I point out that a financial planner or online calculator can help them estimate what their child’s long-term financial needs will be. Any assets intended for a child with special needs should be channeled into the SNT in order to maintain eligibility for means-tested government programs such as SSI and Medicaid.

The next decision is whether to create the SNT within a will (testamentary) or as a separate document (inter vivos). The latter is advisable if parents wish to begin funding the trust during their lifetimes or if other individuals are likely to make gifts or bequests to the child.

Naming the right trustee(s) to manage the SNT is critical, and I advise parents to first focus on the near-term, choosing someone who could assume that role immediately, if necessary. The ideal trustee is conscientious, has financial acumen and an understanding of government benefits, and is willing to consult a special needs attorney regularly to ensure proper administration of the trust. This is a huge responsibility, and it may be advisable to have a professional trustee available as backup.

Parents should then write a companion document, a “letter of intent,” to guide the trustee and others who will figure prominently in the child’s future. No one knows a child better than Mom and Dad, and the letter of intent should include information that will help others to make decisions of which the parents would approve. For instance, is a service dog important to the child’s well-being? Should vacations be planned? Music lessons? I provide a sample letter to help families get started. Once it’s complete, they should be sure to tell the child’s support network that it exists.

Finally, it’s important to design flexibility into the SNT so that, if necessary, trustees can be replaced and the document can be amended as government regulations or personal circumstances change.

Almost invariably, parents experience a sense of relief once the SNT has been completed. “I feel so much better—that wasn’t so bad,” they’ll say. “Why was I dreading this? You made it easy.”

About this Article: We hope you find this article informative, but it is not legal advice. You should consult your own attorney, who can review your specific situation and account for variations in state law and local practices. Laws and regulations are constantly changing, so the longer it has been since an article was written, the greater the likelihood that the article might be out of date. SNA members focus on this complex, evolving area of law. To locate a member in your state, visit Find an Attorney.

 Requirements for Reproducing this Article: The above article may be reprinted only if it appears unmodified, including both the author description above the title and the “About this Article” paragraph immediately following the article, accompanied by the following statement: “Reprinted with permission of the Special Needs Alliance – www.specialneedsalliance.org.” The article may not be reproduced online. Instead, references to it should link to it on the SNA website.