Special Needs Trusts
What is a Special Needs Trust? A Special Needs Trust, otherwise known as a Supplemental Needs Trust, is a legal instrument that is established for the benefit of a person who is receiving, or will be receiving, means-tested government benefits, such as SSI (Supplemental Security Income) and/or Medicaid (health care coverage for people with relatively little income and assets).
What is an example of the use of a Special Needs Trust? Let’s say that Grandma has a grandchild who was born with a disabling condition. Grandchild regularly needs expensive medical care. If Grandma’s Will leaves money directly to Grandchild, Grandchild will have to use those inherited funds before being eligible for further government benefits. A good solution to this problem is for Grandma to have Grandchild’s inheritance paid into a Third-Party Special Needs Trust. The trustee of the Trust will be able to use trust monies to purchase goods and services (i.e., "supplemental needs") for Grandchild that are not provided for through government benefits. As long as the trustee spends trust monies in an authorized fashion, Grandchild will continue to receive uninterrupted government benefits. Grandma can provide that if Grandchild does not survive the complete distribution of the Third-Party Special Needs Trust, the left-over assets in the trust can be paid directly to other beneficiaries chosen by Grandma.
What is another example of the use of a Special Needs Trust? Let’s say that Daughter receives government benefits, such as SSI and Medicaid. Mom dies with a Will that leaves monies directly to Daughter (i.e., not in a Third-Party Special Needs Trust). Daughter essentially has two choices. First, she can accept the inheritance and use it for any purpose, but if she does, her access to SSI and Medicaid will be restricted for a period of time. In other words, Daughter will be penalized for having received the inheritance and using it for any purpose she desired. Second, Daughter may immediately deposit the inherited monies into a Self-Settled Special Needs Trust, otherwise known as a Supplemental Needs (d)(4)(A) Pay-back Trust. The Self-Settled Pay-Back Trust must provide that any monies left in the trust at the time of Daughter’s death shall be paid to the government to the extent of the value of the government benefits provided to Daughter during her lifetime. While Daughter is living, the trustee may use trust monies to provide Daughter with goods and services (i.e., "supplemental needs") that are not provided for through government benefits. It is very important that only authorized expenditures are made from the Special Needs Trust; therefore, it is critical that you appoint a trustee who knows, or is capable of learning, the technical rules related to government benefits and Special Needs Trusts.
Following are some important rules that must be adhered to during the administration of Special Needs Trusts:
It is very important that the rules regarding distributions from Special Needs Trusts are followed. If the rules are not followed, you take the risk that Supplemental Security Income (SSI) and/or Medicaid benefits will be withheld for a period of time. To ensure that benefits continue uninterrupted, it is very important that you follow the rules regarding distributions from the trust.
First Rule: No trust monies should be distributed from the trustee directly to the beneficiary. This practice is prohibited - no exceptions. When the trustee spends trust monies for the beneficiary's supplemental needs, the trustee must direct payment for goods and services directly to the provider of the goods and services. For example, if trust monies are used to purchase a television for the beneficiary, the trustee must not give money to the beneficiary to make the purchase. Rather, the trustee must pay trust monies directly to the store.
Second Rule: Trust monies must only be used for "supplemental" needs. That is, monies shall only be used for goods and services not provided for through Supplemental Security Income (SSI) and/or Medicaid. Those programs are designed to provide for primary needs. Trust monies must only be used to satisfy supplemental needs. Following is a list of many of the goods and services that typically may be purchased with Special Needs Trust monies:
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Television |
Life insurance premiums |
Cable television |
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Household furniture |
Materials for hobbies |
Telephones and radios |
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Transportation expenses |
Tickets for events/movies |
Cameras |
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Vehicle |
Musical instruments |
Visits to friends/family |
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Vehicle insurance |
Cosmetics |
Entertainment |
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Exercise equipment |
Club memberships |
Newspapers/magazines |
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Trips and vacations |
Home improvements |
Personal care attendant |
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Eye glasses & contacts |
Computer equipment |
Professional services |
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Education expenses |
Conferences/seminars |
Athletic training equipment |
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Special dietary needs |
Vocational rehabilitation |
Physical rehabilitation |
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Out-of-pocket medical and dental expenses |
Annual independent
physical check-ups |
Electronic equipment |
Special Needs Trust planning is a highly technical area. Not all “estate planning” attorneys are capable of setting up and implementing Special Needs Trust plans. You should only work with an attorney who has a dedicated focus on Special Needs Trust planning. The Chicago special needs trust lawyer of Sylvester Law Firm has such a dedicated focus. We welcome you to call us at (847) 251 - 2999 to discuss how a Special Needs Trust can help you and your loved ones.
Following are some links to web-sites that provide additional information on Special Needs Planning:
Protected Tomorrows
DisabilityResources.org
Academy of Special Needs Planning
Overview of Estate Planning Issues for Children With Special Needs
National Alliance on Mental Illness: Special Needs Planning
Wrightslaw
Begley & Bookbinder, PC
Autism Today
The Center for Special Needs Planning
Estate Planning: What Parents of Children With Disabilities Should Know
Illinois Yellow Pages for Kids With Disabilities
Autism and PDD Network
Community Alternatives Unlimited |