A Trust is a written set of instructions for managing your assets – bank accounts, financial investments, real estate and so on. In this newsletter we will be discussing Special Needs Trusts.   A Special Needs Trust is designed to work for the benefit of a person with a disability, usually a son or daughter, brother or sister, or parent. It provides a set of instructions for managing assets set aside to help the disabled person without jeopardizing government benefits he or she might be receiving.  These trusts are relatively inexpensive to create, and are usually once-in-a-lifetime investments. For the next few weeks we will be addressing common questions. 

My sibling is disabled, can I create one for them?

Yes, But…

The United States Code section that authorizes Special Needs Trusts states that “a parent, grandparent or guardian” is authorized to establish a Special Needs Trust.  Siblings, caregivers or friends are not mentioned at all.  However, the law does not forbid siblings and others from setting up Special Needs Trusts.  The law does not specify whether the “guardian” mentioned must be Court-appointed or can be a “guardian-in-fact,” such as a concerned sibling.   And it does permit an interested third party (such as a sibling) to establish the Trust under certain circumstances.  A well-written Special Needs Trust established by someone other than a parent, grandparent or legal guardian should include a citation to this law for the sake of clarity.

The Courts in most States have recognized the right of a sibling, friend or caregiver to establish a Trust, and case law supports the idea. Call for more information and to speak with a knowledgeable attorney.

What must a Special Needs Trust say?

Special Needs Trusts require special language.  At a bare minimum, the Special Needs Trust should state that it is intended to provide “supplemental and extra care” over and above that which the government provides.  The Trust must state that it is NOT intended to be a basic support Trust.

 Can any lawyer write a Special Needs trust?

Just as most podiatrists aren’t neurosurgeons…

A family or person that wishes to benefit an individual with a disability or chronic illness will be well advised to utilize the services of an attorney that specializes in Special Needs issues.

A Special Needs Trust can very easily be “invaded” by governmental benefit sources, and the Trust can be easily invalidated if the proper language is not utilized throughout the Trust.  A poorly written Trust can cause a loss of benefits, a loss of savings, or other financial and legal hardships for the Beneficiary or the Trustee, some quite severe, including civil litigation or criminal prosecution in some extraordinary circumstances. Make certain that the Attorney you choose is especially familiar with Special Needs Trusts. Not every Estate Planning Attorney knows this area of the law.  Using a law firm that specializes in Special Needs issues assures you that the attorney is familiar with the benefits systems, the proper creation of the Trust, and ultimately the defense of the Trust in the event that it should be challenged by a court, the Social Security Administration, MediCal, or the like.

A Trust is a written set of instructions for managing your assets – bank accounts, financial investments, real estate and so on. In this newsletter we will be discussing Special Needs Trusts.   A Special Needs Trust is designed to work for the benefit of a person with a disability, usually a son or daughter, brother or sister, or parent. It provides a set of instructions for managing assets set aside to help the disabled person without jeopardizing government benefits he or she might be receiving.  These trusts are relatively inexpensive to create, and are usually once-in-a-lifetime investments.

When should I create one?

A Special Needs Trust is a valuable estate planning and investment tool.

It is very common to create a Special Needs Trust early in a child’s life as a long-term means for holding assets to benefit the disabled child. This is particularly true of parents who wish to leave funds for a child’s benefit after the parents’ death. The Special Needs Trust is the estate-planning tool of choice for those parents.

Additionally, the disabled or chronically ill individual may at some time during his or her lifetime come into funds from third party sources, such as a personal injury settlement or a bequest from relatives or friends, Social Security back payments, insurance proceeds, or the like. 

If my family is wealthy and not concerned with government benefits, why bother with a supplemental needs trust?

A Special Needs Trust can help protect your disabled family member, and make your wishes known.

Some Trusts aren’t appropriate for Special Needs persons because they don’t address the specific needs of the disabled beneficiary or his future lifestyle. Even in situations where a family may have significant resources to help a disabled family member a Special Needs Trust should be established to address these issues.

Monies placed in the Trust remain non-countable assets and allow the beneficiary to qualify for available benefits and programs. Why sacrifice services that might be available to your relative now and in the future?

If having money in the name of my disabled child causes problems, why can’t I leave the money to a sibling so they can take care of him/her?

Leaving money to others can create serious problems.  A non-disabled sibling holding assets for the benefit of a disabled sibling could have financial issues of their own, and be subject to such liabilities such as judgments from automobile accidents, a bankruptcy, an IRS garnishment or a divorce.

In such circumstances, the assets meant to benefit the disabled or chronically ill person could go to pay the judgment creditors or the estranged spouse of the non-disabled sibling.  Using a Special Needs Trust guarantees that the funds will be held only for the benefit of the person under the disability or chronic illness, and not for any other purpose whatsoever.