How Do Special Needs Trusts Work: A Comprehensive Guide

If you have a child or loved one who has a disability, you understand the constant juggling act involved in their care. From daily activities to doctor’s visits, you strive to provide the best support. But what about their long-term financial security?

That’s where a special needs trust becomes your greatest ally. In this comprehensive guide, our estate planning lawyers at Cary Estate Planning will walk you through the ins and outs of how special needs trusts work and how they empower you to safeguard your loved one’s future.

What Are Special Needs Trusts (SNTs)?

A special needs trust is an estate planning tool that allows individuals with disabilities to receive income without affecting their eligibility for public assistance benefits like Medicaid and Supplemental Security Income (SSI).

This type of trust helps cover the beneficiary’s financial needs while preserving access to essential government programs, providing a valuable solution for a person with special needs and their loved ones looking to protect their assets.

Purpose and Benefits of Special Needs Trusts

The primary purpose of a special needs trust fund is to ensure that beneficiaries can maintain their quality of life without jeopardizing critical government benefits. By creating a special needs trust, you can ensure that both their cherished ones’ future and their own financial resources are safeguarded.

Some key benefits include:

• Maintaining eligibility for Medicaid and SSI benefits;
• Providing supplemental funds for housing, education, and medical expenses not covered by public assistance programs;
• Tax advantages due to the non-profit status of many trusts; and,
• Estate tax savings when properly structured.

Types of Special Needs Trusts & Trustees’ Responsibilities

There are two main types of special needs trusts – first-party trusts, established using assets owned by the beneficiaries themselves, and third-party trusts, created using assets contributed by family members or friends on behalf of individuals who cannot financially support themselves due to disability status.

Both types play a crucial role in protecting beneficiaries’ financial resources while maintaining their eligibility for public assistance benefits like Supplemental Security Income (SSI).

First-Party Special Needs Trust

A First-Party Special Needs Trust is funded with the beneficiary’s own assets, such as an inheritance or personal injury settlement. They must comply with specific federal and state regulations to ensure that they do not jeopardize the beneficiary’s government benefits eligibility.

Third-Party Special Needs Trust

A Third-Party Special Needs Trust is established by someone other than the beneficiary, these trusts can be set up during a person’s lifetime or upon their death through a will or trust document. Unlike first-party trusts, third-party ones have no payback requirement to Medicaid after the beneficiary passes away.

Pooled Trust

You may also benefit from a Pooled Trust — a type of special needs trust managed by a nonprofit organization, where funds from multiple individuals with special needs are combined for investment purposes.

Whichever trust you choose, trustees must be appointed to oversee the trust. Trustees have numerous responsibilities, including:

• Managing investments and assets in the trust
• Paying taxes
• Keeping accurate records
• Meeting tax obligations
• Understanding basic sound investment rules as well as being aware of beneficiaries’ personal requirements

The trustee of a special needs trust should be knowledgeable about North Carolina law governing special needs trusts and have strong organizational skills to manage all aspects of this important estate planning tool effectively.

How to Set Up a Special Needs Trust in North Carolina

If you are considering creating a special needs trust, it is crucial to understand the process involved. While not legally required, working with an experienced special needs planning attorney can ensure that your trust complies with North Carolina law and maintains eligibility for government benefits.

1. Drafting the legal document: The first step involves drafting a comprehensive legal document outlining the terms of the trust. This includes specifying who will serve as trustee(s), how assets will be managed, and what expenses may be paid from the trust.
2. Notarizing signatures: Once all parties have signed the agreement, it must be notarized by a licensed notary public to become effective. This ensures that everyone’s identity has been verified before making any binding commitments.
3. Funding options: After establishing your special needs trust, you can fund the trust using various trust assets like cash, investments, life insurance policies, or funds from an ABLE account. It is essential to choose funding sources wisely since they may impact Medicaid eligibility or other government assistance programs.

Regularly reviewing and updating your special needs trust ensures continued compliance with changing laws and regulations while meeting beneficiaries’ evolving financial requirements.

How Can the Beneficiary Use the Funds in a Special Needs Trust?

The funds in an SNT can be used to enhance the beneficiary’s quality of life in various ways, while adhering to specific guidelines set by the government.

Here are some of the ways a beneficiary can use the funds in a Special Needs Trust:

1. Housing expenses: SNT funds can be used to pay for rent, mortgage payments, property taxes, and home maintenance costs. However, the trust cannot directly own the beneficiary’s primary residence.
2. Medical and dental care: The trust can cover medical and dental expenses not covered by Medicaid, such as specialized therapies, adaptive equipment, and private health insurance premiums.
3. Education and training: Funds can be used for tuition, books, tutoring, and other educational expenses to help the beneficiary acquire new skills and knowledge.
4. Transportation: The trust can pay for accessible vehicles, vehicle modifications, maintenance, and transportation services to help the beneficiary maintain independence and access the community.
5. Personal care and assistance: SNT funds can be used to hire caregivers, personal assistants, or companions to help with daily living activities and provide respite for family caregivers.
6. Recreational activities: The trust can fund hobbies, vacations, and other leisure activities that contribute to the beneficiary’s well-being and social integration.
7. Assistive technology: Funds can be used to purchase and maintain adaptive devices, communication aids, and other technology that improves the beneficiary’s functional capabilities and independence.

When using SNT funds, it is crucial to work closely with the trustee and consult with legal and financial professionals familiar with Special Needs Trusts. By carefully managing the trust funds and adhering to the guidelines, the beneficiary can enjoy a higher quality of life without risking their access to vital government support.

Secure Your Loved One’s Future with a Special Needs Trust

Caring for a loved one with special needs can be challenging, but with the right planning, you can ensure their long-term well-being and financial security.

At Cary Estate Planning, we understand the complexities of special needs planning and the importance of getting it right. Our experienced estate planning attorneys can guide you through the process of setting up a special needs trust tailored to your unique circumstances.

Don’t leave your loved one’s future to chance. Take action today to give them the support and resources they need to thrive. Contact us to schedule a consultation today.