Trusts are an essential tool in estate planning. The primary purpose of a trust, in general, is to ensure that money set aside for a beneficiary will be used for the purpose it was intended. Parents often put money aside for children to receive only when they reach a certain age, and certain requirements may be included as to how that money can be used. A Trustee is the person who holds the property and is responsible for the fulfillment of the terms of the trust.
A “Special Needs Trust” (SNT) is a type of trust created for the benefit of someone with a disability. It is irrevocable, meaning it cannot be canceled, and the assets are not subject to creditors or lawsuits. The benefit of special needs planning comes in the future when a caregiver dies or is no longer able to provide care to the disabled individual for whatever reason. In Springdale and Fayetteville (Washington County, Arkansas), where the percentage of the population with disabilities is approximately 15%, special needs planning is a worthwhile consideration.
Two basic types of Special Needs Trust in Arkansas
Special Needs Trusts can either be for General Support or for Supplemental Care. The most common is a Supplemental Care Special Needs Trust, which is meant to be a secondary source of benefits once government benefits have been exhausted. In contrast, a General Support Special Needs Trust is the sole or primary source of benefits for the disabled individual. The property included in that type of SNT could potentially preclude need-based benefits provided by the government.
What types of benefits can be included for the disabled?
SNT’s can be planned and customized to fit the specific needs of each disabled individual. The term “special needs” is interpreted broadly. Benefits can include not only medical care and services, but also products and other services that may benefit the disabled and improve quality of life. Some examples include: domestic services to aid in daily activities, respite care for the primary caregiver, living arrangements, education and training, service animals and other professional services.
Who can establish a Special Needs Trust?
There are three primary ways that Special Needs Trusts are established: through family members, the court, and through non-profit organizations.
A Family-Type Special Needs Trust is created when parents provide the funds by will or through a life insurance policy. Some parents may also leave the property in a “living trust” which becomes effective immediately. One drawback with this type of trust is that the money cannot be used for food, clothing or housing. Otherwise, benefits under SSI and Medicaid may be reduced or eliminated altogether.
A Court-Ordered Special Needs Trust is reserved for special situations where a disabled individual obtains a court settlement or an inheritance. This type of trust is different because the beneficiary actually owns the money. Only the parents, grandparents, legal guardian or the court can set up this type of trust.
A Pooled Special Needs Trust is created through a non-profit organization. Anyone, including the beneficiary, can contribute to the fund. It is called a “pooled” trust because the funds of several beneficiaries are pooled together by the non-profit, to be managed and invested on behalf of the beneficiaries. If there is any money left in the trust when the beneficiary dies, the money is not given to the State but is used to help others with disabilities.
As Special Needs Trusts are complicated legal documents that must be worded properly in order to be valid, you should consult an experienced and knowledgeable estate planning attorney.