Special Needs Trusts

A properly structured Supplemental Needs Trust, also called Special Needs Trusts, enables you to preserve assets for a disabled beneficiary while maintaining eligibility for governmental program benefits.

Some facts…

• In 1993, Congress enacted a law that entitled disabled individuals to derive the same estate planning benefits as non-disabled individuals.
• The law created Supplemental Needs Trusts. These enable you to leave any amount of money to a loved one who has special needs without affecting their eligibility for the state or federal benefits they receive, as long as certain requirements are met.
• Essential benefits under the Supplemental Security Income (SSI) and Medicaid programs provide only for the bare necessities such as food, housing and clothing.
• A Special Needs Trust can provide your loved one with resources that would allow them to enjoy a richer quality of life.
• Establishing a Supplemental Needs Trust for a chronically ill or disabled beneficiary in advance of receiving a gift, bequest, or settlement will enable those funds to be transferred immediately to the Trust without affecting eligibility for benefits.
• A Special Needs Trust protects your disabled beneficiaries from potential creditors and predators.

Some traps to avoid…

• Losing Control: As the parent of a special needs child, you are the child’s “natural guardian” and can make all decisions regarding the child. However, your rights as guardian do not allow you to have access or control of your child’s assets (i.e., proceeds from a lawsuit or gifts from a family member) unless you are appointed conservator. To find out more about becoming a conservator, click here.
• Waiting too long: When your child turns 18, you lose your rights as natural guardian to make health care and other life decisions for them. We can help you initiate a guardianship proceeding to get you appointed as guardian for a disabled child or family member. We recommend you begin this process six months prior to the special needs individual’s eighteenth birthday.
• Disinheriting your disabled family member. Even if done for the best of reasons, the emotional impact of disinheriting a child could disrupt the child, the parents and the family unfavorably.
• Making a “gift to another with directions.” Increasing the share to a family member or making a gift to a family friend, with the understanding that the funds will be used for the benefit of the disabled child is risky:
  • once the gift is given, the recipient is under no enforceable obligation to spend the money as understood.
  • The recipient might go bankrupt or be sued which would put those assets at risk
  • The gift might trigger a gift tax.

The process:

1. Get Educated: as soon as you identify the potential need for a special needs trust, take action to learn about the requirements and your options. Front Range Estate Planning offers free, no obligation consultations if you may need a special needs trust. Local service organizations such as The Colorado Fund for People with Disabilities http://www.cfpdtrust.org and the Guardianship Alliance of Colorado http://www.guardianshipallianceofcolorado.org/provide educational information.
2. Answer questions about the Trust: Once you determine that a special needs trust will be useful for your loved one, particular rules must be followed in creating the trust and specific language used in order to ensure your loved one remains eligible for benefits. Other important questions include determining who the trustee and successor will be, the standards for distribution, when the trust will be created and the like.
3. Decide when to create the Trust: A special needs trust can be established before it is needed, for instance if an award from an injury claim is anticipated; it can be created as a standalone trust, or can be created within a will. If it is created within a will, then there will be court supervision of the trust.
4. Fund the trust: In a special needs trust can be funded at the time the trust is created, at the time of the settler’s death, or after the trust is created. Each of these methods have risks and benefits which should be considered before deciding when to fund the trust.