The Pros and Cons of a Special Needs Trust: Ensuring Your Child’s Future

Leaving money to a loved one with special needs can be a tricky process; you want to make sure that they are well taken care of but you also do not want to interfere with them receiving necessary government benefits.

Pros and Cons of the Special Needs Trust

Preserving Medicaid & SSI Eligibility

While owning a house, car, or other personal effects will not affect eligibility for Social Security Income (SSI) or Medicaid, other assets like cash in a checking or savings account certainly will. One common way to avoid losing eligibility for these arguably necessary programs is by drafting what is known as a Special Needs or Supplemental Needs Trust (SNT). With an SNT, instead of leaving your property directly to the beneficiary, you leave it to the trust instead. As with any trust, you’ll have to choose a trustworthy individual to serve as trustee; the designee will have complete control over the assets in the trust and will have the power to spend the money on behalf of your loved one. However, since the funds are not left directly to your beneficiary, they will have no control over how they are spent and thus, SSI and Medicaid will have to ignore the trust property when it comes to determining their eligibility.

Pros of the SNT

Aside from preserving Medicaid and SSI eligibility, Special Needs Trusts also come with several advantages. For one, the funds used to pool a SNT are tax-deductible. Said funds are also not available to potential creditors to be used for paying any debts or judgements. The money is only permitted to be used for the care and wellbeing of the person with a disability by the trustee, which is especially comforting when there is the concern that the beneficiary could either be influenced or taken advantage of when it comes to the trust funds.

Things to Consider

As with any legal tool, there are certain things to keep in mind when considering whether or not a Special Needs Trust is right for you and your loved one. Firstly, SNTs can cost a pretty penny to set up, and can come with annual fees that might make it financially difficult to create the trust. They can also come with minimum amounts required in order to set up. For this reason, it is wise to check with a financial planner and an estate planning attorney to make sure that you are fully aware of the costs associated with creating the special needs trust.

While this is inherent to the creation of the Special Needs Trust, beneficiaries, as mentioned above, will not have access to the trust and will have to request funds from the trustee, who will have to make sure that the request is appropriate and coincides with the purpose of the trust. Your loved one will have little control over how the money is used (aside from making the request) which can lead to frustration and conflict.

Funds in a SNT can also be used to payback Medicaid for any benefits used. This usually only occurs if there are funds left over in the trust upon the death of the beneficiary.

Since a trustee will have full discretion over how the trust funds are utilized, creating a Special Needs Trust comes with the responsibility of keeping the trustee accountable and to ensure that your loved one’s needs are being met. Many people who set up SNTs also keep a family member involved, known as a co-trustee. However, having two people in charge of the trust’s funds can create conflict, so it’s important to include in the trust how the relationship between the trustee and co-trustee will work. It goes without saying that the trustee should have your loved one’s best interests at heart and should know what their needs are.

Hire a Professional

If you have people with disabilities among your loved ones and would like to make sure that their needs are taken care of when you pass away, there is no better route to take then creating a Special Needs Trust for them. With an SNT you can ensure that any assets you leave to the trust will not affect their eligibility for government programs, and by choosing a reliable trustee you’ll know that your loved one is being taken care of. If you’re looking to set up your own SNT, we highly recommend you seek out a licensed estate planning professional who will ensure that your loved one is being properly looked after when you pass away.