The Many Roles of Special Needs Trusts

Families planning to create a third party special needs trust (SNT) often think of it as a standardized document, drafted for the sole purpose of protecting public benefits for an individual with special needs. A well-planned special needs trust has the ability to significantly affect the individual’s quality of life.

The role of means-based programs, such as Medicaid and Supplemental Security Income (SSI), are also important considerations. Protecting eligibility for public benefits is just one of the crucial components that a well-constructed plan helps to achieve.

Parents of a child with special needs likely think about the life they’d like to make possible for their loved one. Perhaps they hope their child will attend trade school or college in order to have a career. They may envision them having a happy social life, with friends who share their interests. They may also picture their child living in a small group home or apartment, with support services. 

A special needs trust can be crucial in facilitating these hopes, but unless the trustee understands the creators’, or grantors’, intentions, it is possible for counter-productive decisions to be made. In attempt to avoid these types of mistakes, guidance may be included in the trust document itself, as well as in a letter of intent (LOI). Ultimately, guidance included in the trust agreement is legally binding, so it should be carefully written to help your trustee exercise  discretion about what is appropriate for the beneficiary without restricting their ability to do so. Since most states don’t recognize LOIs as legal documents, you may wish to consider referencing a separate, more detailed, document.

SNTs & Public Benefits

It is important to understand how SNTs and public benefits can be used together as planning tools. Means-based benefits require that individuals have limited income and assets to qualify. Supplemental Security Income (SSI), for instance, requires that beneficiaries have no more than $2,000 in countable resources. In most instances, it is quite difficult to have a decent standard of living under such circumstances. Since assets held by an SNT on the beneficiary’s behalf are not counted when determining someone’s eligibility, they can play a great role in ensuring quality of life.

While government benefits can provide a foundation for the beneficiary’s economic security, sometimes added the restrictions may not be worth the struggle. A well drafted SNT ensures that the trustee should use good sound judgment in determining the beneficiary’s best interest.

In some situations, it may be worth giving up some of these SSI dollars, as SSI is meant to cover all food and housing expenses. Using SNT funds to help pay rent would ultimately reduce the individual’s monthly SSI payments; however, if it meant living in a nicer home, it is likely worth it. Although this may be the case, the trustee would need to weigh the numbers and make a valued judgment.

Alternatively, take a situation in which an individual receives Childhood Disability Benefits (CDB) and Medicare, neither of which imposes income/resource limits. Depending on the beneficiary’s health needs, there might not be a need for Medicaid and its added financial constraints.

In another case, the beneficiary may hope to be self-supporting someday in which the SNT could facilitate access to public benefits while the individual is able to build career skills. There are various programs designed to protect benefits while an individual is exploring work options; however, the beneficiary might eventually make too much money to be eligible for means-tested programs. In these types of situations, the SNT would have “done its job,” acting as a bridge to self-reliance.

Flexibility

Over time, a beneficiary’s needs will evolve. This can be a result of a number of reasons. For example, changing health may mean that Medicaid becomes increasingly important or that they are in need of additional support services. If they were to move to a different state, their residential options may differ. For this reason, SNTs should not be treated and recognized as static documents.

This fact may surprise individuals who are under the impression that, to protect the beneficiary’s benefits, the SNT must be irrevocable. The trust agreement can be written to enable the trustee, or in some cases, the grantor during life,  a trust protector or advisory committee to amend the trust agreement if the beneficiary’s circumstances change. They should also possess the right to replace a trustee who isn’t performing to the desired standard.

A carefully considered SNT, written with potential flexibility, can make a huge difference to the life of someone with disabilities, giving them options that result in security and independence; however, it should be fitted—and revised—in relationship to individual needs. In regard to planning and understanding the many different options, a special needs attorney can be an integral component in creating a document that directly influences personal fulfillment.

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