Special Needs Trusts: Frequently Asked Questions (FAQ)
Wondering what the term “Special Needs Trust” means? Or other terms commonly used in conjunction with it? Read on to get a better understanding of various words and phrases that may be used in a discussion related to Special Needs Trusts and Special Needs Estate Planning.
Q: What is a Special Needs Trust?
- A Special Needs Trust is a legal document enabling assets to be held on behalf of someone with disabilities without affecting their eligibility for means-tested benefits.
- A Special Needs Trust must be irrevocable, and the funds must be used for the sole benefit of the beneficiary.
Q. What is An Irrevocable Trust?
- An Irrevocable Special Needs Trust is defined as a trust where no one reserved the power to revoke the trust.
Q: What are the Benefits of setting up a Special Needs Trust?
- Special Needs Trusts allow a beneficiary to preserve his or her benefits from government needs-based programs and also reap the benefits of the assets (plus investment income) held in the trust.
- The purpose of a Special Needs Trust is to improve the quality of an individual’s life while preserving assets and protecting benefits.
Q: What are the types of Special Needs Trusts and Which One is Right for My Loved One?
A First Party Special Needs Trust, or self-settled Special Needs Trust, is created with assets that belong to an individual with disabilities. Examples of funds in a First Party Special Needs Trust include:
- A personal injury settlement.
- An unplanned inheritance.
Key facts and requirements of a First Party Special Needs Trust include:
- A person creating a First Party (d)(4)(A) Standalone Special Needs Trust must be under age 65 at the time that the trust is established. (A person age 65 and over can set up a First Party Pooled Special Needs Trust).
- Funds remaining in a First Party Trust are subject to a Medicaid payback.
- Upon the death of the beneficiary, funds remaining in the trust must first be used to reimburse Medicaid for services to that individual, paid by Medicaid, before any remaining funds can be distributed to anyone else.
A Third-Party Special Needs Trust is created with assets from a donor. Examples of a Third-Party Special Needs Trust donor include:
- Parents
- Grandparents
- Other Relatives of Beneficiary
- Friends of the beneficiary
Key facts and requirements of a Third-Party Special Needs Trust include:
- A Third-Party Special Needs Trust is often used to hold an inheritance or gift.
- A Third-Party Special Needs Trust does not have a Medicaid payback.
- Upon the death of the beneficiary, there is no requirement to use residual funds to reimburse Medicaid for services provided to the individual.
- The donor of the funds may designate how remainder funds are to be allocated.
A Pooled Special Needs Trust (SNT) is a good option for small estates or in instances where it is difficult to identify a trustee. Unlike PLAN of MA & RI, many financial institutions do not handle small Special Needs Trusts and charge fees that are not cost-effective for small trusts. A Pooled SNT is an option to give families access to highly skilled trustees. Under OBRA-93 regulations, Pooled Trusts or (d)(4)(c) were established and are required to be administered by a non-profit 501(c)3. The non-profit develops a Master Trust which serves as an “umbrella” trust document for every beneficiary who enrolls by signing and executing a Joinder Agreement or Instrument of Trust Assignment.
Key facts and requirements of a Pooled Special Needs Trust include:
- Every beneficiary in a Pooled SNT has their own sub account.
- Funds are “pooled” for investment purposes only.
- Pooled SNT’s can be either First Party or Third-Party.
A Future Funded Special Needs Trust is usually funded by a donor’s Estate meaning that funds won’t be available in the trust until the individual establishing the trust (on behalf of a beneficiary) passes away.
Q: Who can serve as a Special Needs Trustee and How Do I Choose One?
- A Trustee can be a Professional Trustee or a Family Trustee.
- Choosing a Professional Trustee, such as PLAN of MA & RI, will ensure effective, knowledgeable, and accountable trust management, and eliminate strained family relationships that often occur when choosing a Family Trustee.
Q: Do I need to have an attorney review my trust documents?
- PLAN of MA & RI does recommend that your Trust documents be reviewed by an attorney. We are happy to recommend attorneys in your area.
Q: What does it mean to fund a trust and how much money is required?
Funding a trust means depositing initial funds into the Special Needs Trust (SNT) you established. You may add additional money at any point in time, and there is no minimum dollar amount you must deposit initially to fund your SNT.
Q: What makes PLAN of MA & RI unique from other Special Needs Trusts experts?
- PLAN of MA & RI offers social services support through our knowledgeable, experienced, and compassionate social workers who follow the complicated and ever-changing rules of Special Needs Trusts and public benefits. They serve as the primary liaison for the beneficiary and their family.
- PLAN of MA & RI operates an all-inclusive model, taking a holistic approach, that includes trust administration and payments for the beneficiary, professional fund management, annual accounting, and tax preparation.
- PLAN of MA & RI has no minimums to establish a Special Needs Pooled Trust.
Let our experienced trust management professionals guide you towards greater financial security and independence.