A special needs trust (SNT) is established to help ensure a disabled loved one can receive financial assistance while guaranteeing they are still eligible to receive government benefits. Also known as a supplemental needs trust, an SNT supplements the needs, lifestyle, and future of a disabled individual. The main reason for setting up this kind of trust is because the public funds they receive barely pay for their daily needs if they cover them at all. A special needs trust can really help to elevate the quality of life of a loved one with disabilities.
Until just recently, an SNT, even a first party SNT, could only be created by a third party. With a new law that passed in 2016, disabled individuals with mental capacity can, for the first time ever, create a first party special needs trust for themselves. This flexibility helps those with a disability save money easier. What else does this new law entail? Kam Law Firm is here to break down this new law along with answering some of the most frequently asked questions about SNT’s.
3 Essential Items About the New Rule for Special Needs Trusts
Bundled within the 21st Century Cures Act, both the House and Senate unanimously passed a law that addressed the outdated law surrounding special needs trusts and who had the rights to set one up.
1. An Individual With Special Needs Can Now Establish a First Party Special Needs Trust for Himself/Herself
The biggest change that this new law made was the ability for an individual with special needs to create an SNT him/herself. This is huge and has great significance.
Before this law passed, SNTs could only be created by a third party. This rule made it hard for those without a living parent or grandparent. In that situation, an individual with disabilities had to go to court to request a first party special needs trust. This process is usually long, quite involved, and costly.
2. The Trust Established by the Person With Special Needs Can Receive the Same Benefits as a Trust Established by Others
Those disabled individuals under the age of 65 can set up a first party special needs trust that has the same benefits as a first party SNT set up by a parent, grandparent, legal guardian, or the court.
In order for this trust to qualify as an SNT, certain requirements must be met. For starters, the SNT must be funded with assets of the disabled person who’s under 65. It also must be created for that person’s benefit and include a provision that states that at death any remaining assets shall first go to repay Medi-Cal/Medicaid for the benefits provided to that individual.
3. One of the Goals is to Support the Independence of People With Special Needs
Special needs trusts are one of a few ways people with special needs can acquire assets without losing government benefits. This new law makes it easier and less expensive, enabling and empowering those with special needs to secure their future.
Common Questions About Special Needs Trust
Now that you know all about the new law and how it affects SNT’s, we’re going to touch on some of the most frequently asked questions our law firm receives.
What is a Special Needs Trust and How do They Work?
Like all trusts, a special needs trust is a legally binding agreement between the following individuals:
- Grantor – the disabled person creating the Trust. This individual also supplies the money and assets.
- Beneficiary – the disabled person who receives the benefit of the SNT funds.
- Trustee – the individual that manages the assets on behalf of the beneficiary. The Trustee is obligated to provide distributions as outlined in the Trust, for the beneficiary’s benefit but has sole discretion (though they owe the beneficiary a fiduciary duty). Should the Trustee fail to meet this duty, either the beneficiary or family member can have this individual removed.
What Are the Main Types of Special Needs Trusts?
There are three main types:
- First Party SNTs: Also known as a self-settled special needs trusts, these are funded by the individual’s assets, usually from his or her inheritance or personal injury settlement. In most cases, these expenses justify the cost of setting up a first-party special needs trust in order to ensure government benefits aren’t lost.
- Third Party SNTs: This type of trust is created and funded by a third party, usually a friend or family member. Third party trusts can be set up as a subtrust to a parent’s Revocable Living Trust which means it won’t be funded until their death. As a stand alone, third party trusts can receive immediate funding.
- Pooled SNTs: The main difference here is that the beneficiary joins an existing trust managed by a non-profit organization that handles taxes, distributions, investment decisions, and serves as the trustee. Assets are pooled together in one large investment fund with the funds of other disabled beneficiaries, providing better rates of returns and sometimes lower costs, though they keep separate accounts for each beneficiary. Pooled trusts can have first-party accounts which are funded from the benecificay’s own money and third-party accounts which are funded with money from other people.
The type of special needs trust you need will determine how you establish one. Meeting with a special needs trust attorney can help ensure that you’re setting up the best one for your needs and family.
What Can a Special Needs Trust Be Used For?
Funds with an SNT are used for supplemental items and expenses that help to provide comfort and improve the quality of life for the person with the disability. Typically, these trusts pay for personal care, attendants (related to health), vacations, home furnishings, out-of-pocket medical and dental bills, education, transportation (vehicle), and rehabilitation.
Can a Special Needs Trust Pay for Housing?
It depends. Special needs trusts pay for everything that goes above and beyond the basic needs which are funded by government benefits. Historically, SNTs excluded payment for housing, however it is becoming more common to provide the Trustee discretion to determine whether it makes sense for the beneficiary to forgo the additional money they would receive from SSI, which in California is around $200. If there are sufficient assets in the SNT, it may make sense to permit the beneficiary to live somewhere nicer or own a condo (in the SNT) and give up that extra bit of cash.
Other expenses that shouldn’t be paid for using special needs trust funds include food and groceries. Gift cards should also be avoided as they will count as cash to the beneficiary.
Consulting with a special needs attorney can help give further clarification on what can and can’t be paid for through a special needs trust.
Are Special Needs Trusts Irrevocable?
In order to be effective and to improve the quality of life for the individual with special needs without affecting that person’s eligibility for government benefits, a first party SNT does need to be irrevocable. A third party can be revocable but there are tax consequences you will want to discuss with a special needs trust attorney.
Making it revocable also ensures that after the trust is signed and notarized, it can’t be revoked. You can, however, amend or terminate it should that need arise.
Once an SNT is set up, the trustee will require legal advice to ensure they comply with the strict legal requirements and governmental oversight.
The Trustee must be or become well-versed in administering SNTs while also maintaining accurate and complete records. This will guarantee compliance with the law while also ensuring that the beneficiary won’t accidentally be disqualified from government benefits, thus defeating the entire purpose of the SNT.
Why Hiring an Attorney is Important to Guarantee More Assets Without Affecting Eligibility
There are several intricacies associated with both special needs trusts and government benefits, none of which are intuitive. These are just two of the many reasons why you should consult and send your questions to the best special needs attorney in San Diego today.
The team at Kam Law Firm has extensive knowledge in preparing special needs trusts. They also pride themselves on working extremely close with clients guaranteeing a more personalized legal approach. To meet with a special needs trust attorney, please call Kam Law Firm today for a free consultation at (619) 535-1405.