Through the estate planning process, there are certain less common types of plans that can offer benefits to your unique situation. Special needs trusts are a great example of this and can help those who are disabled.
A special needs trust is a legal agreement where a person with a disability can access funding without affecting their ability to get additional funding from public access programs. The overall design of this kind of trust is to support the quality of life for those who are disabled. They are also known as supplement needs trusts. Unlike public access programs, you can’t use this type of trust money to cover living costs. You can only spend this cash on certain items or services, including:
- Medical costs
- Caretaker fees
- Legal costs
- Insurance and compensation claims
But before you can set up this type of trust, there are additional factors to consider. You first have to determine which type of special needs trust is right for you. Below, we’re discussing the ins and outs of both types of special needs trusts, and how you can benefit from each in your planning process.
What are the two main types of special needs trusts?
There are two types of special needs trusts that you can consider: Third-party and first-party.
Third-party special needs trusts (SNTs) are often created under a will or living trust by the parent or legal guardian of the disabled family member. You can only use an SNT that is created in this way after the death of the person who created the SNT provision under the trust. The disabled individual can still use it to ensure greater financial stability in the future, however.
First-party SNTs are usually self-funded. Because of this, they can also be called self-funded pooled disability trusts. These types of SNTs allow disabled people to keep unexpected assets. This means that the person can use any sort of inheritance money or court settlements that they may receive to cover future medical costs.
Considerations in creating an SNT
Since the introduction of the Special Needs Trusts Fairness Act of 2016, disabled individuals can now receive the financial support that they need from anyone who is willing to help. This is also inclusive of charities and nonprofit organizations. Despite this clause, there are still several other considerations to make when evaluating if an SNT is the right choice for you and your family.
One major consideration you need to make is who you will choose to be your trustee on the agreement. Deciding who your trustee is is a much bigger decision to make as you will not be limited to a parent or guardian. The trustee plays a vital role in the establishment of the trust. It is important to consider who you plan to appoint and evaluate the decision carefully — potentially with other family members involved as well.
Your trustee should be someone that you trust, as they will be responsible for authorizing payments. They should also be up to date with the current laws and regulations surrounding SNTs.
Trustee appointments for SNTs without available parent or guardian
Approaching a nonprofit organization or charity to serve as your trustee is beneficial, as they should have up-to-date information on what you can and can’t spend the money on. They can also provide additional support through the process. However, while nonprofits offer individuals with special needs a legitimate alternative when there isn’t a parent or guardian available to name, there are considerable downsides to this strategy.
Downsides to appointing a nonprofit organization as your SNT trustee
A key downside to this strategy is that generally, you will be required to pay an administration charge. This makes this option limiting for those who are dealing with financial struggles. Charities will also have additional processes for managing payments, which presents another barrier to entry for those who do not have the time or resources to go through the process.
Trustees are key to a viable SNT strategy
No matter who you choose as your trustee, you should generally try to keep the selection pool to a family member or trusted caseworker to ensure that your needs and the disabled individual’s needs are being met. This person will be the advocate for your case, and they will need to work with you to review and submit any payment requests.
The reason why a strong advocate is so important is that in an SNT, the trustee holds the most power in the legal relationship. Only they can approve payment requests, and payments will be made on a set list of terms in the initial signed agreement.
Ascent Law is here to help you navigate the nuances of SNTs and estate planning
Consulting a skilled estate attorney will make the process of setting up your process as smooth as possible. Your legal team can ensure that the trust is compliant with both state and federal law, as well as assist you in creating a fair and equitable agreement. For more information about SNTs, reach out to our team today at (801)-432-8682.
