WHAT IS A SPECIAL NEEDS TRUST?

by Thomas D. Begley, Jr., Esquire, CELA

A Third Party Special Needs Trust is generally established by parents or grandparents of a child with special needs to ensure that important public benefits can be accessed in the future or can be maintained if they are already available.  The trust also is designed to see that monies are properly invested and utilized for the benefit of the child with disabilities in the most appropriate manner.  

• Document.  A Special Needs Trust is a document drafted by an attorney based on input from the parent or grandparent of the child with disabilities.
• Grantor.  The parent or grandparent is the grantor of the Special Needs Trust.  The money to fund the Special Needs Trust comes from the parents or grandparents or from life insurance policies on the life of the parents or grandparents. 
• Beneficiary.  The beneficiary of the trust is the child with disabilities.  The monies in the trust are used for the benefit of that child.  Typically, these trusts pay for household goods, furniture, automobile, durable medical equipment, televisions, radios and cable services, computers, iPads and other technology, telephones, musical instruments, recreation and entertainment, medical insurance, telephone bills, newspapers and magazine subscriptions, services of a Care Manager, vacations, movies, tax payments, medical treatment for which public funds are unavailable, education, cleaning supplies and paper products, medical and dental care, and personal services, including lawn mowing, house cleaning, grocery shopping, and babysitting.
• Trustee.  The trustee is the entity that manages the money, invests it for growth, and makes distributions for the benefit of the beneficiary.  When establishing a Special Needs Trust it is always wise to designate a professional trustee.  Public benefit rules constantly change, and family members named as trustees are seldom able to keep up with the changes and this often leads to a loss of public benefits for the child and even a surcharge against the family member trustee.
• Distributions.  The purpose of a Special Needs Trust is to enrich the child’s or grandchild’s life while maintaining important public benefits.  The trustee makes distributions on behalf of the beneficiary to accomplish this purpose.  Generally, the trustee meets with the beneficiary and/or other family members and develops a budget.  Frequently the trustee obtains a credit card for the beneficiary or a family member of the beneficiary, who then charges items within the budget and sends the credit card bill and receipts to the trustee for payment.  If the item is not in the budget, then the beneficiary contacts the trustee in advance to obtain approval for the purchase. Alternatively, the beneficiary can have the trustee purchase items and pay directly to the third party provider.  For example, if the beneficiary were to buy a new car, the trustee would pay the dealer directly.  The trustee cannot distribute money to the child or grandchild, because this would be considered income and cause a loss of public benefits.  

One thing to be considered is how long the trust is intended to last.   As a rule of thumb, if distributions do not exceed 4% of trust asset in a given year, the trust will last the lifetime of the beneficiary.  If distributions more rapidly than that, it is not likely that the trust assets will last as long as the child or grandchild lives.  This is an important consideration when deciding how much money is needed to fund the trust.  What are the parent’s or grandparent’s intentions?  How much will the child or grandchild need on an annual basis?  How much is necessary to fund the trust?  The attorney assisting the family in drafting the trust can be helpful in developing a budget and an estimate as to how much will be needed to fund the trust to accomplish the parent’s or grandparent’s objectives.