How Special Needs Trusts are Used in Estate Planning

Sometimes referred to as supplemental needs trusts, special needs trusts (SNTs) are

important legal documents that are included in an estate plan with the goal of providing

clarity for loved ones should you become disabled. It is part of a collective estate plan,

and its importance shouldn’t be underestimated.

These important documents provide the opportunity for those with a physical or mental

disability – or one who has a chronic or terminal illness – to ensure your wishes are being

met in terms of assets held in that trust. They’re also typically safe from inclusion when it

comes to determining government benefits based on assets, which is an added comfort.

Those benefits might include SSI, Medicaid, various rehabilitation programs, housing

and medicines.

Using Special Needs Trusts

The law dictates that a supplemental needs trust or special needs trusts should be used for

needs that the government does not provide. When properly drafted by an estate planning

lawyer, these trusts can be a true blessing when the government does not provide

complete coverage for the disabled person’s needs. If government benefits are unable to

provide anything for that person, the trust kicks in and covers those needs in their

entirety. This applies to those covered under Medicare or Medicaid (called Medi-Cal in

California), as well.

The rules of Medi-Cal say these trusts may not be used for day-to-day expenses such as

housing or food; however, they may be used to ensure a home is adequately prepared to

meet the needs of the disabled person. An example would be wheelchair ramps.

Interestingly enough, the Medi-Cal food restriction does not apply to vacations, dinner

parties or other entertainment where food is served. This is surprising to many people

because they assume the trust is designed to cover their needs for survival only, when in

fact, it can and should be used to bring enjoyment and new, positive experiences to the

beneficiary.

Wealth and Special Needs Trusts

Many people believe their wealth exempts them from the possibility of a special needs

trust for a loved one. While that’s true in other trusts’ purposes, a special needs trust is

focused squarely on the disabled person and his current and future lifestyle. It’s not

nearly as restrictive as many might believe. A family’s wealth may not be enough to

provide for a disabled family member tomorrow.

Remember, the assets in the trust will not be counted as the owner’s assets and therefore,

won’t prevent future benefits and program qualifications. Perhaps more importantly, a

trust is off limits to creditors and may not be seized. Even if the beneficiary is sued, the

assets in the special needs trust remain untouchable. Each trust is its own “entity”,

complete with its own Federal Identification Number (Employer Identification Number)

issued by the Internal Revenue Service. They are never registered under either the

grantor’s or the beneficiary’s Social Security numbers.

This is just the tip of the iceberg. To understand all of the intricacies associated with

special needs trusts, it’s crucial you meet with an experienced and qualified estate

planning lawyer who is well versed in SNTs, so that he or she can cover those bases in

their entirety. When the future of a loved one is at stake, it’s time well spent.