What Is a Special Needs Trust?

Goals and Benefits of a Special Needs Trust

Special Needs Trusts allow parents to provide for their child’s future and can be part of a comprehensive estate plan that gives them peace of mind. The State of Maryland encourages the use of Special Needs Trusts (or “supplemental needs trusts”) to provide for the needs of individuals with disabilities that are not met by public benefits and to enhance quality of life. Maryland also mandates that state agencies refrain from adopting regulations that interfere with Special Needs Trusts. Many other states have similar policies.

In a Special Needs Trust, assets are held, managed, and distributed for the benefit of the person with a disability. The main purpose of a creating a Special Needs Trust is to provide for a child who has a disability without causing them to lose eligibility for governmental benefits and assistance like Supplemental Security Income and Medicaid.

As with other types of trusts, a Special Needs Trust beneficiary cannot control how funds are spent — the trustee does. When funds are considered an available resource of the beneficiary (e.g. if they are directing how and when funds are spent), they will be taken into account when the beneficiary applies for government assistance programs. It is crucial to work with an experienced trusts attorney to ensure a Special Needs Trust is created properly and does not jeopardize a beneficiary’s eligibility for means-tested benefits.

When creating the trust document, it is crucial that the beneficiary has no power to revoke the trust, no access to the funds in the trust, and that the trustee has sole discretion over expenditures. It is also important to discuss the tax consequences of the Special Needs Trust with your financial advisor and attorney.

For many parents, a Special Needs Trust helps ensure continuity of care for their child after they are gone. Be sure to talk with your attorney if you would like to arrange for your child to continue living in a family home.

Establishing a Special Needs Trust

Special Needs Trusts can be established in two main ways;

“First-party” Special Needs Trusts are established with assets that either belong to the individual with a disability, or assets to which they will become entitled, like property, inheritances, and court settlements. Upon the death of the beneficiary, remaining funds from this type of Special Needs Trust are first used to reimburse the state for Medicaid expenditures.

Other Special Needs Trusts are established with funds or property from a third party (or “grantor”), such as a parent or grandparent.

A Pooled Asset Special Needs Trust is similar, but this type allows participating trusts to pool assets for investment purposes. This type of Special Needs Trust is managed by a nonprofit for the benefit of all beneficiaries, and can be established with either first or third party funds.

Role of a Trustee

The trustee has two main fiduciary obligations: to manage the trust assets (i.e. preserve and protect them from loss) and decide how trust assets are distributed. The trustee of the Special Needs Trust has discretion over spending on food, shelter, utilities and transportation. Funds must be used for the sole benefit of the beneficiary, to meet needs that are not met by other sources. In addition to properly managing and distributing trust assets, the trustee is responsible for tax reporting, bookkeeping, and accounting for the trust. As with other types of trusts, Special Needs Trustees are entitled to a certain amount of compensation under Maryland law, which is paid out of the trust funds.

Trustees for Special Needs Trusts have additional responsibilities. They must also regularly inquire about the beneficiary’s needs and communicate with his or her family and service providers. To fulfill their responsibilities, trustees are permitted to engage outside professionals, including social workers. Social worker advocates can serve as liaisons between different care providers and the trustee, ensuring that the beneficiary’s needs are met.

A trustee can be any competent adult. There are professional trustees like banks, but they can be a family member or friend as well. In the trust document, a grantor appoints a trustee and can also appoint a successor trustee. Usually one trustee is appointed, but a grantor can appoint multiple trustees. In that case, the trust document must lay out how final decisions are made. A trust can also establish the protocol for removing and replacing a trustee, and allow the original trustee to choose their successor.

Additional Future Planning Steps to Consider

As you plan a Special Needs Trust, it is important to have a plan in place for communicating your child’s needs, as well as the opportunities available to them, to the trustee. These future planning steps help ensure the care your child receives is person-centered.

Document information about the beneficiary for the trustee. This includes individual preferences, financial needs, medical history, and contact information for family, friends, and professionals in their lives. Ensuring the continuity of friendships, family relationships, and preferred activities is an important aspect of future planning.

Create a Letter of Intent. In a Letter of Intent for the trustee, you can outline how you envision the trust being used, as well as your child’s needs, preferences and personality. The letter should be updated periodically, as your child’s needs may change over time. You can also provide this letter of intent to your service providers. However, you may need to specify that the trustee send regular inquiries about the beneficiary’s current needs and send regular information about the trust to service providers. If this is only done once, after staff turnover, some may not be aware of the Special Needs Trust and their ability to request funds. If there is an advocate for the trust beneficiary, her or she can also coordinate communication between service providers and trustee with this letter of intent in mind.

Planning for Decision-Making. Discuss future decision-making with your child and your attorney. How will medical or other serious decisions be made? You may want to give your trustee (and advocate, if applicable) guidance on using supported decision making, which helps someone with a disability understand information and make important decisions for themselves. Depending on your child’s needs, you may also want to discuss with your attorney creating a power of attorney or appointing a guardian.

Apply for Services. In Maryland, the Developmental Disabilities Administration (DDA) provides in-home supports and residential services. Applying for these can help ensure continuity of care and quality of life for your child after you are no longer able to provide care.

Advocates for Trust Beneficiaries

There are state-funded and privately funded options for advocates that can assume the role of advocate for your child. Organizations that advocate for the beneficiary help ensure their needs are always met, and their welfare is paramount. Advocates communicate with and update the trustee, provide oversight and coordinate services like in home care, day programs, and residential programs, other support services.

Advocates for the trust beneficiary also support them through life transitions and assess whether their needs are changing, especially as they age and perhaps retire. If you want a family member or friend to take on this advocate role, be sure they are aware and prepared to accept those responsibilities.

Consulting an Experienced Attorney

For years, Bethany G. Shechtel, Esquire has guided her clients through the estate planning process and ensured their unique needs were met. To learn more about mediation and divorce, contact BGS Law, LLC.