When is a Self-Settled Special Needs Trust Inappropriate?
by: Thomas D. Begley, Jr.
Self-Settled Special Needs Trusts are often use when a person with disabilities receives a personal injury settlement, an inheritance, equitable distribution, alimony or child support. However, in many instances a Self-Settled Special Needs Trust is not appropriate. A disability lawyer must make an analysis on the onset to make this determination.
Some of the reasons that the trust may be inappropriate are:
- The beneficiary does not qualify. For example, the beneficiary may not be disabled or may be over age 64.
- The beneficiary may not be receiving means-tested public benefits, such as SSI and Medicaid, and may never require such benefits in the future. Also, the amount may be so large that benefits may not be necessary. In those situations a determination should be made whether a special needs trust is appropriate for other reasons. Perhaps a support trust would be adequate.
- The amount of the net settlement may be too small. For net amounts under $100,000 it is usually better to seek an alternative to a standalone Self-Settled Special Needs Trust, because of the expense associated with establishing and maintaining the trust. If the net settlement is between $100,000 and $200,000, then a trust may or may not be appropriate. If an individual trustee is available then the trust cost may not be prohibitive. A pooled or community trust may be a good option.
- It is difficult to find a professional trustee if the amount of liquid assets to be placed in the trust is less than $500,000 – $1,000,000. If a substantial percentage of the settlement is in the form of a structured settlement annuity, there will be insufficient liquid assets to interest a financial institution in serving as trustee.
A Quick Screen should be develop to screen those cases where a Self-Settled Special Needs Trust is not appropriate.