A Special Needs Trust (SNT) is designed to hold and manage assets for the benefit of a person who should not or cannot manage their own finances. This can include both those with a disability and those receiving means-tested public benefits such as Medicaid even if they are not disabled. The SNT is generally intended to improve the beneficiary’s quality of life by covering select expenses such as education, transportation, personal care, therapies, technology, recreation, etc. SNTs can help to ensure that a disabled beneficiary receives their inheritance in a manner suitable to them, or in a manner that does not threaten their entitlement to needs-based public programs. SNTs do this in several ways.
How an SNT Protects Your Beneficiary
First, SNTs allow you to choose how funds are managed for the benefit of your beneficiary. This can be tailored to each unique situation. In the case of an individual with a disability, you can name a trustee to manage the beneficiary’s inheritance for the benefit of the beneficiary. You can also outline specific ways you would like the trustee to use the funds for the beneficiary. An experienced estate planning attorney can guide you through the process, walk you through your options, and make recommendations unique to the circumstances.
Second, SNTs can help prevent a beneficiary from becoming disqualified from the means-tested public benefits that they are currently receiving, such as Medicaid. Means-tested public benefits are only provided after the examination of an individual’s financial situation shows that they do not meet a certain threshold of assets. If they receive an inheritance directly, that could easily put them over the threshold and cause them to lose their benefits. Once the inheritance is exhausted, they would then have to re-qualify, which can take months. During the re-qualification period, they could have difficulty providing for their needs that were originally met by the means-tested public benefits. Ultimately, the receipt of their inheritance in this scenario would cause more harm than benefit.
The SNT clearly spells out how the trustee is to administer the SNT such that it will not endanger your beneficiary’s entitled benefits. Importantly, the trustee of your SNT will make distributions to your beneficiary in such a way that the distributions are not treated as support or maintenance, but as an “amenity” that is meant to help improve their overall quality of life. This can range from educational opportunities, to covering therapeutic treatments not covered by assistance programs, or even a trip to the movies, all of which are intended to generally enrich the quality of life for the beneficiary without affecting their entitlement to benefits.
Choosing the Right Trustee
When creating an SNT, one of the most important factors to its long-term success is the selection of the trustee. The trustee will be responsible for the ongoing management of funds. This includes paying bills, managing investments, keeping records and accountings, and exercising their judgment where the trust allows. The trustee can receive compensation for their services, as outlined in your trust. Depending on the circumstances, they could be serving for a number of years, or even decades. It is a tremendous responsibility and can come with its own share of risks. When making your selection, consider the trustee’s ability to manage funds wisely.
In addition to practical considerations when choosing a trustee, consider the relational, emotional, and interpersonal ramifications of your selection. The trustee will stand between a person and their inheritance, which can put them in a difficult position if there is any disagreement. Although siblings are a natural choice for the role of trustee, we have seen several situations where over time, conflicts about the management of the SNT lead to serious damage in these relationships. You may also consider naming a neutral party, such as another family member, friend, attorney, or trust institution to serve as trustee of your SNT. As you think through who you will name as trustee of an SNT, consider both the potential trustee’s financial responsibility, as well as their ability to handle relational pressures that may come from serving in that role.
If you are interested in learning more about how an SNT may fit into your estate plan, or if you have questions about how it works and your options, please contact our office. We would love to talk with you and help you craft the plan that best suits your needs.