The special needs trust

Estate planning for seniors often involves decisions regarding the passing of wealth to one or more adult children. Sometimes the decision is made to pass on assets, including cash, outright. In other cases, especially where there is concern about poor spending habits, property can be passed down in the form of a trust, with a named trustee being given the responsibility of managing the trust assets for the benefit of the adult child for a period of years.

Providing for the needs of a seriously disabled child poses additional challenges. Many disabled adults receive Social Security disability benefits as well as health care benefits from Medicaid. If cash or other assets are bequeathed directly to a disabled child, those benefits will be lost because such benefits are means-tested. Leaving property to an adult child in a conventional trust will also result in these benefits being lost.

However, property can be left to a disabled child, without the loss of Social Security disability payments and Medicaid benefits, though the use of a properly drafted Special Needs Trust (SNT). The central purpose of the SNT is to permit the use of the trust funds for the extra or supplemental needs of a public benefits recipient. There is not sufficient space here to describe all of the trust language that should be included when creating the trust so as to not jeopardize the public benefits of the beneficiary. However, the following points are typically included in the trust:

1. Distributions from the income and principal are purely discretionary.

2. Cash distributions directly to the beneficiary are forbidden.

3. The trustee is to consider the effect of any distribution on public benefits eligibility.

4. Language which clearly expresses the intent that the funds are to be used to supplement rather than replace public benefits.

Some examples of appropriate expenditures of a SNT are:

• Enabling the beneficiary to participate in social activities and recreation

• Paying for visits with surviving family members

• Traveling to attend church services and other religious events

• The purchase of burial space and prepaid funeral arrangements

• The purchase of clothing and furniture

• Payment for dental care

• Payment for educational or vocational programs.

As you can see, the SNT is a tool designed to allow a disabled adult to live as a fully participating member of the community.

James Bendell practices law at the Grupp Law Firm in Coeur d'Alene and is a member of the National Academy of Elder Law Attorneys.