Special Needs Trusts: 3 Things Caregivers Should Know

If you are the principal caregiver of an individual with special needs, you may be wondering how planning for their future fits into your estate plan. After all, you know there are special considerations involved in caring for a child or adult with special needs, and it is only natural to worry about how they will continue to be taken care of when you are no longer around. Fortunately, there is an estate planning tool that can help ensure that ongoing care and financial support will be provided. Here are three points to keep in mind:

#1 What is a special needs trust?

A special needs trust (“SNT”) is used to hold assets and provide support for individuals with disabilities while still preserving their ability to receive government benefits, such as Supplemental Security Income, Medicaid, food stamps, and housing subsidies. There are three types of special needs trusts: (1) “third party” wholly discretionary special needs trusts, (2) (d)(4)(A) special needs trusts, and (3) (d)(4)(C) special needs trusts. While third party special needs trusts will be the focus of this article, the other two types of SNTs are worth mentioning.

The (d)(4)(A) and (d)(4)(C) special needs trusts are named after the provisions of the federal Social Security Act in which they were created. These provisions provide exceptions to the law requiring that assets in a trust be considered when determining an individual’s eligibility for State benefits. Because Maryland has its own laws for determining eligibility for government benefits, these two statutory SNTs must be drafted in compliance with both the Social Security Act and Maryland law. This can be very complex, so it is recommended that individuals considering a (d)(4)(A) or (d)(4)(C) SNT consult with an experienced Maryland estate planning attorney who can help identify which trust will best fit their circumstances.

Third party special needs trusts, on the other hand, are governed by the Maryland Trust Act. The Maryland Trust Act was enacted to further the State’s policy of encouraging the use of SNTs to preserve funds to provide for needs that are not met by public benefits and to enhance the individual’s quality of life. A third party SNT can be funded by parents, grandparents or other loved ones and is designed to protect the person’s eligibility for means-tested benefits. Means-tested benefits are those that are only awarded to individuals with limited income and assets. Therefore, receiving money or other assets through a gift or inheritance can lead to disqualification. By passing assets to the special needs trust rather than to the individual directly, their eligibility is preserved.

#2 What is included in a special needs trust?

A third party special needs trust allows a family member to set aside specific assets to be used for the beneficiary’s needs that are not covered by government benefits. For example, the assets can be used for the beneficiary’s utility bills, education, entertainment and recreation, and other personal needs. Because the goal of a third party SNT is to preserve eligibility for government benefits, trust distributions cannot be made for expenses that are covered by such benefits, such as food, shelter, and certain medical and health care expenses.

#3 How can a family member create a third party special needs trust?

The party creating the special needs trust puts money into the trust and designates a trustee who is responsible for managing the trust. The trustee also makes sure the funds are properly disbursed and used for their intended purpose. Third party SNTs are typically created in one of three ways: (1) included in a Last Will and Testament, (2) established within a Living Trust, or (3) created as a stand-alone trust. There are different advantages and disadvantages associated with each option, and an experienced estate planning attorney can assist the creator with determining which one is right for them and their loved one. It is also essential that the person creating the trust consult with an attorney to ensure that the trust document is executed according to State law and that the terms and purpose of the document are clear and valid.

*Information in this article is provided for educational purposes only and not intended to constitute legal advice. Please consult with a licensed attorney in your jurisdiction for help with your specific situation.