Why It May Be Necessary

The care of a special needs individual can often be cost-intensive. Many special needs individuals have vastly depleted personal funds, especially those who are unable to earn a living. As a result, many rely on Medicaid and Supplemental Security Income for their care and basic living expenses.

However, these government benefits are means-tested. If a special needs individual were to suddenly inherit money, become entitled to proceeds from a legal settlement, or receive a large gift from a well-meaning relative, they may no longer qualify for their government benefit(s) because their assets, income, or both could suddenly exceed the allowable limits.

“There’s often this paradox with those who qualify for Medicaid and SSI,” said Sally Griffin, Trust Officer with Old National Wealth Management. “If an individual receives additional funds, how can they improve their quality of life when they’re not allowed to keep much money in the bank? In most cases, going off the benefit would be disastrous. That’s where a trust comes in.”

How It Works

A family member – or even the special needs individual themselves – establishes a Special Needs Trust. The funds are held and administered by an individual or corporate trustee on behalf of the beneficiary.

As part of the arrangement, the special needs individual is not allowed to purchase things directly – the funds must be allocated by the trustee. Funds cannot be used to purchase needs covered by government benefits, such as housing, food, and medical expenses. However, they can be used for supplemental expenses. This includes clothes, entertainment, vacations, furniture and other approved activities and goods.

Since the special needs individual does not have direct access to cash, these funds do not count against the income requirement of government benefits. Additionally, most SNTs stipulate that when the primary beneficiary passes away, Medicaid expenses must be reimbursed from the remaining trust assets prior to any distributions to the remainder beneficiaries.

The Role of the Trustee

The trustee has a fiduciary duty to ensure that the trust is managed in the best interests of the beneficiary.

“When you consider the structure of a Special Needs Trust, you can see the importance of choosing your trustee very carefully,” said Griffin. “You want to work with an excellent steward – an organization with experience, whom you know will take good care of your loved one.”

On a day-to-day basis, the trustee must make sure that the supplemental needs of their beneficiary are met – and do so in a way that’s consistent with the wishes of those who set up the trust. This responsibility can range from making sure the individual always has clean, comfortable clothes, to giving the individual the opportunity to take a vacation, to denying frivolous requests that would deplete the funds of the trust too quickly.

There is also the long-term role of the trustee: managing the estate. This includes investing the funds efficiently, as well as performing recordkeeping functions required by federal and state governments. The trustee must also track and adhere to changing laws and regulations related to SNTs.

How to Get Started

A trusted wealth advisor or financial professional can review your options with you. Setting up a Special Needs Trust is a major step. You’ll want to understand the type of trust you need, the parameters you’ll set as the creator of the trust – and whether a SNT is truly your best option.

What matters most is securing the best possible care for your loved one. A Special Needs Trust is a tool that may help you get there.

If you have further questions about Special Needs Trusts, please contact your Wealth Advisor at 1834.