Special Needs Trusts

Special Needs Trusts refers to an Estate Planning technique used to shelter assets for a Special Needs Person in a way that does not interrupt the person’s needs-based government benefits.

What Is a Special Needs Trust?

A Special Needs Trust is an Irrevocable Trust designed to hold assets for a person receiving needs-based government benefits. The person who benefits from the trust is the “beneficiary.” Typically, the beneficiary is an individual with physical or mental disabilities who qualifies for needs-based benefits, such as Medicaid. Giving this person money or making them an heir would disqualify them. Special Needs Trusts were created to hold assets for these people without excluding them from the benefits. A Special Needs Trust allows you to look out for your loved one by providing them with the little extras that will improve their life.

First Party Special Needs Trusts

A First Party Special Needs Trust is an Irrevocable Trust created to hold the special needs person’s assets. The Trustee uses these assets for the Special Needs Person’s care without disqualifying him or her from needs-based government benefits, such as Medicaid.

First Party Special Needs Trusts are often used when a Special Needs Person receives a legal settlement, inherits assets, or receives a divorce settlement. The goal is to allow the SNT person to benefit from their needs-based government benefits and use these other funds to supplement those benefits. Because the assets belong to the SNT person, if unused they must be applied to reimburse Medicaid.

Example: George, a Philadelphia resident, becomes a Special Needs Person as a result of a car accident. He begins collecting Medicaid. Years later, his lawyer obtains a $100,000 settlement. George places the money in a First Party Special Needs Trust. George continues to collect Medicaid. At his death, the SNT still holds $60,000. George used $150,000 of Medicaid benefits. The successor trustee must apply the $60,000 towards the $150,000 “debt.”

Third Party SNT: Trusts Set Up by the Family

Unlike First Party Special Needs Trusts, Third Party trusts are Irrevocable Trusts funded using other people’s money. If properly drafted, the Trustee can use these funds to provide for the Special Needs Person without disqualifying him or her from needs-based government benefits such as Medicaid. Because the funds never belonged to the Special Needs Person, at death, any remaining money does not have to be applied to reimburse Medicaid.

Typically, Third Party SNT are created as part of the parents’ estate plan.

Example: Grandpa is a Bucks County, Pennsylvania resident, and directs his Estate Planning Lawyer to draft a Will including a Third Party Special Needs Trust for Grandson. At Grandparent’s death, the executor funds the trust, giving the Trustee the ability to provide for Grandson. Grandson, a resident of Camden County, New Jersey, continues to receive Medicaid benefits from New Jersey. At Grandson’s death, the SNT still holds $100,000. This money does not have to pay back New Jersey for Medicaid used. Instead, it passes outright to Granddaughter, per Grandparent’s Will terms.

Pooled Special Needs Trusts

At times a Special Needs Person owns assets, but forming a First Party Special Needs Trust is inconvenient or impractical. In these cases, the funds can be contributed to a Pooled Special Needs Trust. As the name suggest, the funds are “pooled” with those of other Special Needs people’s resources creating economies of scale. The professional Trustee manages the funds for the Special Needs person but, at death, the funds must be applied to reimburse Medicare.

Advantages of a Special Needs Trust

Special Needs Trusts allow the Beneficiary to benefit from Trust assets without being disqualified from needs-based benefits.
The Trust’s Trustee looks out for your loved one. Because many people with physical and mental disabilities are not able to manage money, they need help. A Special Needs Trust allow you to pick someone to help. This helper can be a family member or a professional Trustee. This person then manages the asset for the Beneficiary. Think of the Trust providing your loved one a protective wall. This wall provides shelter from waste, abuse, and theft. While protecting the assets, the Trustee has the discretion to use the trust’s funds to make your loved one’s life better.
A Special Needs Trust protects assets from theft, abuse, and waste.
An additional layer of protection is possible by naming a Trust Protector. This Trust Protector is typically a person who will look out for the beneficiary but does not wish to serve as Trustee. The Trust Protector can monitor the Trustee with the right to remove and replace the Trustee at any time.

Common Questions Regarding Special Needs Trusts

How Do I Protect My Special Needs Parent to Inherit if I Die First?

To protect a Special Needs Parent, a child may incorporate in his Will a Third Party Special Needs Trust. The Trust is funded if the parent survives the child but is not should the parent die first. If funded, the Third Party Special Needs Trust can provide for the parents’ care, but will not disqualify the parent from needs-based government benefits. If the child is the Special Needs Parents’ guardian, the child should also make arrangements for a successor guardian should the child die. This way the parent isn’t left without a Guardian of the Person or if needed, a Guardian of the Estate.

What is a SNT?

SNT is an abbreviation for a Supplemental Needs Trust or a Special Needs Trust. These are two ways to describe a trust created to hold assets for a Special Needs Person without disqualifying that person from needs-based government benefits.

What is a Special Needs Trust Fund?

When someone refers to a Special Needs Trust Fund, the are speaking about a Special Needs Trust or a Supplemental Needs Trust. These trusts can be Third Party Special Needs Trust using the funds of someone other than the Special Needs Person, or a First Party Special Needs Trust funded with the Special Needs Person’s funds.

What is the Difference Between a Supplemental Needs Trust and a Special Needs Trust?

These two terms are interchangeable. A Supplemental Needs Trust and a Special Needs Trust are two ways to describe a trust created to hold assets for a Special Needs Person without disqualifying that person from needs-based government benefits.

How Can I Provide for My Special Needs Child When I Die?

If you are your Special Needs Child primary caregiver, your child’s safety and security are your responsibility. This responsibility includes preparing for your child’s care at your death. If your child is competent, make sure he has designated a trustworthy Agent Under a Power of Attorney. If your child is unable to sign a Power of Attorney, take the time while your input is available to have a court appointed Guardian of the Person and Guardian of Estate. Further, your Estate Plan should incorporate a Third Party Special Needs Trust utilizing a reliable Trustee and, as a balance, a team of Protectors.

What is Special Needs Trust Financial Planning?

Special Needs Trust Financial Planning refers to focusing the investments owned by a Supplemental Needs Trust or a Special Needs Trust to best benefit the Special Needs person. The Trustee selects the investment advisor. The Trustee should make sure all investments are made taking into consideration the Special Needs Person’s age, particular needs and expected life span.

What is a Self-Settled Special Needs Trust?

A Self-Settled Special Needs Trust refers to a First Party Special Needs Trust created by the Special Needs Person for himself or herself.

What is a Special Needs Trust Lawyer?

A Special Needs Trust Lawyer is an Estate Planning Lawyer with experience the specialized area of drafting Special Needs Trusts.

What is an Irrevocable Special Needs Trust?

Typically, when someone asks about an Irrevocable Special Needs Trust they are speaking of a Third Party Special Needs Trust. These trusts are often created by parents or grandparents to provide care for a Special Needs Child or Grandchild without disqualifying that person from needs-based government benefits.

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If you have any questions about Special Needs Trusts or any other estate planning topics, feel free to contact us to schedule a free consultation. For more than two decades Klenk Law has focused only on Estate Law. We’ve seen it all, and this experience allows us to explain complex estate planning techniques clearly and concisely. We make it easy for you to understand Special Needs Trusts so you can make the best decisions for yourself and your family.

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Peter Klenk is the founding member of Klenk Law, a seven attorney boutique estate planning law firm. We serve clients in Pennsylvania, New Jersey, New York, Minnesota and Florida. Peter Klenk received his Masters in Taxation LL.M. from NYU Law School and his J.D. from the University of Minnesota Law School. He served his country in the Navy JAGC during Desert Storm. Easy to talk to, feel free to call Peter for an appointment. We will make the process as easy as possible!