How special needs trust can help disabled family members

| May 14, 2021 | Estate Planning |

Many families in and around Sherman, Texas, have one or more members who are considered to have what have come to be called “special needs.” Generally speaking, a person with a special need is someone who suffers from one or more disabilities that limits their ability to work. The disability can be physical, psychological or medical. Many state and federal government programs exist to provide financial and direct medical care to such persons.

Many of these families also have assets that they would like to bequeath to the disable person. This intent often runs afoul of federal or state regulations that limit the amount of money that can be left to these persons without endangering their eligibility for their government benefits. To solve this problem, the government institutions that oversee these aid programs have approved a device called a “special needs trust” to provide additional financial aid to these disable persons without threatening their eligibility for government benefits.

What is a special needs trust?

A special needs trust is a sub-category of a familiar legal device, the trust. A special needs trust instrument must be drafted to comply with applicable state and federal regulations. The assets in the trust can only be used for the direct needs of the beneficiary for medical care, housing, and other specified needs. A person is not eligible for government financial benefits if their personal assets equal or exceed $2000. Therefore, no trust can have assets that exceed this limit unless the trust complies with state and federal regulations that define eligibility for special needs trusts.

Different kinds of special needs trusts

Special needs trusts fall into two categories: first party trusts that are funded from the beneficiary’s personal assets, and third party trusts that are funded from the assets of the beneficiary’s parents or other relative or acquaintance. A third type of special needs is a pooled special needs trust. In this type of trust, assets belonging to many beneficiaries are held in a single fund with a separate account for each beneficiary. The trustee (see below) is obligated to manage the trust funds for the needs of all beneficiaries.

The common requirement: A trustee

While different special needs are used to meet different beneficiary requirements, all such trusts must have a trustee who is legally required to oversee the use and distribution of the trust assets to serve the purposes of the trust. In doing so, the trustee must ensure that all trust assets are used for the purposes specified in the trust instrument.

Anyone interested in establishing a special needs trust will benefit from consulting an experienced estate planning attorney. A capable lawyer can evaluate the suitability of a special needs trust and prepare a trust instrument that satisfies both state and federal laws that specify the financial limits on special needs trust and the uses for trust assets.