Trusts are legal entities established to provide secure management and fair distribution of property to one or more beneficiaries. There are a number of reasons why a person might be interested in creating such an arrangement, and there are different types of trusts depending on the desired purposes. One type of trust that can be very useful in providing for an individual with a disability or special needs is a Special Needs Trust, sometimes called a Supplemental Needs Trust.
Key Characteristics of a Special Needs Trust
A Special Needs Trust (SNT) can be set up for a family member or friend who has a disability. The primary purpose of the SNT is to preserve the disabled beneficiary’s eligibility for needs-based government benefits while supplementing those benefits with funding for additional expenses. In order to accomplish this, the SNT must be carefully written and administered to avoid an inadvertent termination of the disabled persons governmental benefits. There are two basic types of SNTs: the first party SNT and the third-party SNT.
- First-Party SNT – Also referred to as a “self-settled” SNT, a First Party SNT is funded by income and/or assets of the person with the disability, most often acquired through inheritance or injury settlement. In addition to funding the trust, they are also the named beneficiary. These trusts often require a court order, and usually contain a “payback” provision—a requirement that, after the beneficiary’s death, any month left in the trust must first be used to pay back the government for benefits received, before the money can go to another person.
- Third-Party SNT – A Third Party SNT is funded solely by assets belonging to someone other than the beneficiary, most often through gifts, inheritance, or proceeds of life insurance policies. Because the money funding this type of trust never belonged to the beneficiary, there is no payback provision, and any money left over after the death of the beneficiary may be given to other persons, such as another child.
A SNT can only be used to purchase or provide items to a beneficiary that are not covered by governmental benefits. Because the government provides disability benefits to assist people in attaining only necessary items,they have the legal right to withdraw a portion of that assistance if the special needs trust is used inappropriately by the Trustee to provide certain necessities to the beneficiary (such as food, rent payments or medical care). A special needs trust is intended to provide a beneficiary with nonessential items that provide comfort or improve quality of life, and a Trustee must be aware of exactly what the trust can and cannot be used for. In addition, the Trustee usually may not make cash payments directly to the beneficiary, but should pay the providers of goods and services directly.
Establishing a Special Needs Trust in Maryland
Once you have obtained some basic knowledge regarding special needs trusts, you will need to find a lawyer who is experienced in drafting and executing these types of Trusts—they can be very technical, and some attorneys who write other types of trusts may not be aware of all the specific rules regarding SNTs. To ensure that the SNT will work properly, you should make sure that your attorney has a significant amount of experience with SNTs.
D Kathleen Rus is a Maryland estate planning lawyer who has extensive experience working with the families of those with Special Needs Trust to ensure that their loved one is protected. With over 25 years of experience in the field, she is dedicated to helping others make the best financial decisions for their family and is a trusted resource in her community. Contact our office to begin the trust establishment process or request a free consultation.