In the US, a Special Needs Trust or a Supplemental Needs Trust is a unique type of trust set up for the benefit of an individual with a disability. The aim of setting up this type of trust is to ensure that the beneficiary, in this case a disabled person, can enjoy its benefits. This includes access to funds required to purchase medication or pay care providers. Here is some more information on a Special Needs Trust:
The US Congress set the legal framework governing the establishment and use of Special Needs Trusts in 1993. Under this legal framework, one can only set up a Supplemental Needs Trust to provide additional care to a disabled person over and above care provided by the government. For instance, if the government can provide 60% of the care a disabled person needs, the Supplemental Needs Trust set up for the same person then plugs the remaining 40% care hole. Some of the government benefits that disabled people qualify to access include Medicaid, subsidized housing, Supplemental Security Income (SSI), and vocational rehabilitation.
Funding a Special Needs Trust
There are several ways of funding an SNT. Firstly, the creator of an SNT can fund it using his/her own money. Take note you can fund an SNT during your lifetime via direct contributions or a one off cash contribution. Alternatively, SNT funding can take place after your death if you include such a provision in your will. Secondly, it is possible to fund an SNT using proceeds generated from a beneficiary’s assets. Legal experts call such a trust “self-settled.” For self-settled trusts, federal law requires reimbursement of costs incurred via use of Medicaid or government medical services after the death of an SNT beneficiary. The general practice is for a beneficiary’s SNT to provide the required reimbursement funds after his/her death. After this, dependents, descendants, or siblings of a deceased beneficiary can share assets remaining in his/her Special Needs Trust. A third way of funding a Supplemental Needs Trust is via gifts, donations, and inheritance from family, friends and other well-wishers. Other viable SNT funding options include life insurance, Social Security survivor benefits, personal savings and investments in retirement funds, as well as military benefits.
Types of Special Needs Trusts
There are three main types of SNTs: family, court ordered and pooled trusts. Parents can set up a family-type Special Needs Trust for the benefit of a disabled dependent like a child. The beauty of such a trust is it becomes effective immediately. Furthermore, parents and close relatives of beneficiary can fund trust by writing checks or via financial provisions written in their wills. The only exception is the beneficiary who cannot contribute money to fund his/her trust. If a disabled person receives money via a court settlement or inheritance, a court ordered Special Needs Trust is usually set up. Individuals or entities that can set up this type of trust include a court, a legal guardian, a disabled person’s parent, or a disabled person’s grandparent. The beneficiary in this case should be younger than 65 years and satisfy Social Security medical standards for disability.
A pooled SNT can only be set up through a non-profit organization. Funds accumulated in a pooled trust benefit more than one individual. Nevertheless, each beneficiary has his/her own account. After the death of a beneficiary, his/her funds remain in the pool to help the other disabled people.
Uses of SNT Funds
Funds in a Special Needs Trust can be used to cover transport, education, medical and dental care costs not covered by government. This is in addition to purchase of computer equipment and home health aides.
Illegal uses of SNT Funds
Illegal uses of SNT funds vary from state to state. Common illegal uses include covering food, utility, housing, property tax and home insurance costs.
If you would like to set up a Supplemental Needs Trust, you should consult a qualified trust attorney to avoid flouting state and federal regulations. Common types of SNTs include family-type, court-ordered and pooled trusts.
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Note that the author of this article is not an attorney. Consult a qualified attorney before making any decision that could affect the financial and tax status of you and your family.