The Special Needs Trust

If you are an individual who has a loved one with special needs, you may consider creating a special needs trust, to provide financial care for the person even after your death. If you directly give money to that particular person with special needs, it might hinder him/her from qualifying for the benefits by the government. However, if you leave money to a special needs trust, you would have significantly improved your loved one’s quality of life, without affecting her/his eligibility for benefits provided by the government.

The Process of Setting up the Trust

You first need to design the trust document. You’ll need an attorney to set up the basic frills trust for special needs. It is important to note that it is always better to create one by yourself, other than failing to have a trust at all.

The Special Needs Trusts, by Urbatsch Kevin and Steve Elias provides forms and a guide for designing a no-frills special needs trust, without an attorney. However, most families will benefit from accessing trust attached to their particular situation. You’ll have to consult a lawyer for additional help, to find a personalized trust.

The individual creating the trust, in the trust document, usually known as the settlor or grantor leaves the property under the control of another person to manage the trust, called the trustee. Specifically, the settlor of a special needs trust names herself or himself as the trustee and another trusted individual successor trustee. The settler plays the role of a trustee until she or he dies, resigns, or becomes incapacitated; at that juncture, the successor trustee takes over. An individual who serves as trustee is lawfully obligated to abide by the terms of the trust document, to utilize the property for the benefit of the person with special needs, recognized in the trust document.

Initial Funding and the Finalization of the Trust

The trust will start to work after you have signed and notarized it. After you’ve gotten the trust’s tax ID number from the IRS, you can now start adding a little cash to the trust, but you have to open a bank account with some deposit. At this point, the trust becomes ready and can be funded through living trusts, wills, beneficiary designations, or any other planning estate tools of those who wish to provide support for the beneficiary with special needs.

Who Is Eligible to Give Property to a Special Needs Trust?

It is important to note that anyone, except the beneficiary of the trust, can give the property to a special needs trust. Even though trusts are usually created by parents for their children, you don’t need to have any family ties for you to create or give support to a trust for an individual. Additionally, there are no limits, as to the number of trusts that may be designed for a particular beneficiary.

The Types of Property That Can Be Held in a Trust

Apparently, any property type can be held in the trust, including collections, real estate, stocks, patents, business, or even jewelry. Bearing in mind that the principal objective of any special needs trust is to collect money to pay for commodities that are not provided by Medicaid or SSI, special needs trust explicitly provide the trustee authority to cash out tangible items, such as jewelry or cars to raise cash. For you to make a decision of whether to sell or keep physical items, as a trustee, you should have a better understanding of the beneficiary’s personal needs plus the basic sound rules for investment.

How Do Assets Get into the Trust?

The individual who designs a trust for special needs makes the first transfer of assets into the trust, which is mostly a small amount of cash. Then, usually, a parent, grandparent, or a relative leaves property to the trust by:

Providing the name of the trustee of the special needs trust as a beneficiary on a signed documentation that determines what happens to a brokerage or deposit account, retirement scheme, or bonds and stocks.

Leaving the property, through a revocable living trust, or a will to the trustee of the special needs trust.

The Trustee’s Task

After the trust have been adequately funded, the role of the trustee becomes crucial. The primary task of the trustee is to utilize trust funds in supporting the beneficiary without jeopardizing benefits by the government. For this to happen, the trustee must possess a solid understanding of how eligibility takes its toll, and she/he must be prepared to abide by the law. Additionally, he/she has other roles, including keeping records, investing trust property, paying taxes and updating the beneficiary’s needs.

How Can the Trust Assets Be Used?

Trust assets can be used for nearly anything that is not contrary or illegal to the terms of the trust. Since the primary objective of a special needs trust is to promote the quality of life of the disabled beneficiary, the list of things that can be paid for is quite long. In most instances, trust

Funds can be used to cater for:

  • Experiences, such as concerts or travel.
  • Items such as clothing, new furniture or a computer.
  • Care-giving, such as therapies not paid for by the Medicaid or personal attendant.
  • Services, including cell phone and the internet.

Payments for shelter or food are slightly complicated, bearing in mind that they always trigger a reduction in SSI benefits. However, though it is challenging, it still makes sense for trustees to utilize trust funds.

Also, you should know that trust funds cannot be used to cater for things that are likely to make the beneficiary ineligible for benefits of the government, such as massive amounts of cash.

The Termination of the Special Needs Trust

The special needs trust come to a halt when it is no longer required. There are four main reasons as to why this would happen:

  • Due to the death of the beneficiary.
  • The depletion of the trust funds.
  • The beneficiary no longer requires government benefits.
  • The beneficiary is no longer eligible for government benefits.


Disclaimer: This article is intended to provide a general summary of laws in the State of California and should not be construed as a legal opinion nor a complete legal analysis of the subject matter. Noelle Minto is an attorney at NM Law, APC in Tustin, California, a law firm specializing in Trusts & Estates and Business Transactions.

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