The principal purpose of a Special Needs Trust (SNT) is to preserve public benefits for beneficiaries with disabilities. The benefits at issue are primarily benefits that are “asset sensitive,” that is, benefits that require the recipient to have resources and income below a certain level to qualify.
SNTs are divided into first party SNTs and third party SNTs.
An SNT established to manage litigation proceeds on behalf of a plaintiff with a disability, with funds that belong to the plaintiff, is a type of first party SNT referred to as a litigation special needs trust. An example is where the person with the disability was involved in a car accident and received compensation from a law suit.
An SNT established in traditional estate planning, i.e., by parents for a son or daughter with disabilities, is referred to as a third party SNT, because the assets that fund the trust belong to a third party, not the beneficiary with a disability.
A properly designed and administered trust can provide funds to supplement the public benefits of a person with disabilities without interfering with those benefits while at the same time providing assets that will meet the supplemental needs of the person with a disability (those that go beyond food, shelter, and clothing and the medical and long term supports and services of Medicaid). The Special Needs Trust can fund those additional needs. In fact, the Special Needs Trust must be designed specifically to supplement, not replace public benefits. Parents should be aware that funds from the trust cannot be distributed directly to the disabled beneficiary. Instead, it must be disbursed to third parties who provide goods and services for use and enjoyment by the disabled beneficiary.
The Special Needs Trust can be used for a variety of life-enhancing expenditures without compromising your loved ones’ eligibility such as:
- Annual check-ups at an independent medical facility;
- Attendance of religious services;
- Supplemental education and tutoring;
- Out-of-pocket medical and dental expenses;
- Transportation (including purchase of a vehicle);
- Maintenance of vehicles;
- Purchase materials for a hobby or recreation activity;
- Funds for trips or vacations;
- Funds for entertainment such as movies, shows or ballgames;
- Purchase of goods and services that add pleasure and quality to life: computers, videos, furniture, or electronics;
- Athletic training or competitions;
- Special dietary needs; and
- Personal care attendant or escort.
Considering the fact that accident or illness can strike a loved one at any time, resulting in disability at any age, every good estate plan should include standby phrasing for such contingencies.