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What Are the Spending Rules for Special Needs Trusts?

A special needs trust is a powerful tool designed to safeguard the financial well-being of individuals with disabilities while preserving their eligibility for crucial government programs like Medicaid and Supplemental Security Income (SSI).

If your loved one were to receive a substantial inheritance or legal settlement — without proper planning — that windfall could disqualify them from the very benefits they rely on for daily living, medical care, and support services.

By establishing a special needs trust, you can ensure that assets intended for your loved one’s care do not directly impact their eligibility for vital government benefits. The trust acts as a buffer, allowing funds to be used for supplemental needs and quality-of-life improvements without jeopardizing their access to essential programs.

The Trustee Plays an Important Role in Managing Special Needs Trust Spending

A trustee is the individual or institution responsible for overseeing the trust’s assets and distributions. In North Carolina, trustees are legally bound to follow the provisions outlined in the trust document as well as the state laws that govern special needs trusts.

Trustees have a duty to ensure that every disbursement from the trust aligns with the beneficiary’s best interests while maintaining their eligibility for government benefits. This balance requires diligent record-keeping, regular communication with the beneficiary (or their legal representative), and, in complex situations, consulting with legal and financial professionals.

Permitted Expenses for Special Needs Trust Beneficiaries

So, what exactly can a special needs trust pay for? The answer lies in striking the right balance between enhancing the beneficiary’s quality of life and complying with program rules and regulations.

Here are some typical expenses that special needs trusts are permitted to cover:

  • Housing and Living Expenses – While government benefits may cover basic housing costs like rent, a special needs trust can supplement these provisions by paying for housing modifications, utilities, internet, and other amenities that promote independence and comfort.
  • Medical Expenses Not Covered by Government Benefits – A special needs trust can help pay for specialized therapies and equipment, uncovered medical procedures, and alternative treatments, ensuring your loved one receives comprehensive care.
  • Personal Care Services and Assistive Technology – Whether it’s hiring a caregiver, purchasing a wheelchair-accessible van, or investing in assistive devices, a special needs trust can fund resources for daily living and personal care.
  • Entertainment, Travel, and Quality of Life Improvements – While government benefits cover the essentials, a special needs trust can fund opportunities for enrichment, such as vacations, hobbies, educational pursuits, and other activities that foster personal growth and joy.

Prohibited Expenses That Could Impact Benefit Eligibility

However, it’s crucial to recognize that not all expenditures are permitted within the framework of a special needs trust. Violating these rules could jeopardize the beneficiary’s eligibility for government benefits, undoing the very purpose of the trust.

Trustees must remain vigilant and avoid:

  • Cash disbursements or direct payments to the beneficiary
  • Expenses that are already covered by government benefits, such as groceries or rent
  • Certain types of investments or large purchases that could be deemed as assets owned by the beneficiary

When it comes to special needs trusts in North Carolina, you have to follow the rules and regulations to a T. The laws surrounding these trusts get very complicated, and even small expenditures that seem harmless could potentially jeopardize important benefits.

That’s why we always advise our clients to seek guidance from experienced estate planning professionals who understand the nuances involved. Professionals in this field, like the team at Cary Estate Planning, can ensure you stay compliant while providing for your loved one’s needs.

Staying Compliant: Tips for Managing Special Needs Trust Expenditures

When it comes to actually using funds from a special needs trust, it’s critical to understand and follow the proper spending guidelines. Even well-intentioned expenditures could potentially run afoul of the rules and jeopardize important government benefits.

Here are some best practices to keep in mind:

  • Keep meticulous records. Every penny spent from the trust should be carefully tracked and documented, just in case those records are needed for audits down the road. Save receipts for everything.
  • Stick to approved expenditures. The types of expenses allowed differ depending on the specific benefits involved but typically cover quality-of-life needs like education, transportation, home maintenance, medical care not covered by insurance, recreation, etc. Steer clear of cash gifts or anything that could be classified as a resource.
  • Consult professionals for big-ticket purchases. Before making any large, atypical purchases from the trust funds, it’s wise to run it by a qualified special needs planning attorney first to confirm it won’t compromise eligibility standards.
  • Prioritize the beneficiary’s best interests. At the end of the day, that’s what trustees should use as their guiding principle for any trust expenditure. If it clearly enhances the beneficiary’s quality of life without violating rules, it’s allowable.

The spending rules exist for good reason – to protect critical government benefits for those with disabilities. By being pragmatically cautious with special needs trust funds, you can provide your loved one with extra resources and improve their life quality, safely and legally.

Get Trusted Guidance for Special Needs Trust Management

Properly managing a special needs trust requires a comprehensive understanding of the regulations involved. Even unintentional missteps with trust spending could potentially jeopardize government benefits for your loved one with disabilities.

At Cary Estate Planning, our team is dedicated to helping trustees manage special needs trusts. We stay updated on the latest federal and North Carolina state laws to ensure full compliance for each trust we assist with.

Don’t risk your family member’s lifelong care and quality of life. Our special needs planning services provide the counsel you need to use trust funds properly while avoiding penalties.

We can:

  • Draft customized special needs trust provisions tailored to your situation
  • Advise on allowable expenditures for maintaining eligibility
  • Facilitate detailed recordkeeping and disbursement tracking
  • Handle all necessary legal procedures for fund management
  • Pursue corrective actions if policy violations occur

Protect your loved one’s future with guidance from a local firm committed to your trust’s success. Contact Cary Estate Planning today to discuss how we can help ensure your special needs trust accomplishes everything you intend.

Author Bio

Paul Yokabitus

Paul Yokabitus is the CEO and Managing Partner of Cary Estate Planning, a Cary, NC, estate planning law firm. With years of experience in estate and elder law, he has zealously represented clients in various legal matters, including estate planning, guardianship, Medicaid planning, estate administration, and other cases.

Paul received his Juris Doctor from the Campbell University School of Law and is a North Carolina Bar Association member. He has received numerous accolades for his work, including being named among the “Best Attorney in Cary” in 2016 and 2017 by Cary News and Rising Star in 2020-2023 by Super Lawyers.

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