If you want to provide support for a loved one with disabilities, it’s important to consider how the assets you leave them could affect the government benefits that the individual relies on. A special needs trust (SNT) can help you provide support while maintaining access to critical benefits. But what is a special needs trust (SNT)? It is a legal arrangement designed to hold and manage assets for a person with disabilities while helping protect their eligibility for certain needs-based government programs.
At Willis Law Group, we focus exclusively on elder law and estate planning, including for those with special needs. Founding attorney Michael Willis has more than 25 years of legal experience to draw on. We can advise you on how to set up an SNT, design your trust terms, and then help you fund it so your loved one can start receiving benefits.
What Is an SNT?
Trusts are a unique and flexible legal tool that allows you to set rules and restrictions on property use. When you create a trust, you place money or other property into it under written terms of how those assets will be managed and used. A trustee follows the terms of the trust by managing and distributing the trust assets for another person, called the beneficiary.
So, what is a special needs trust, and how can it help a disabled beneficiary qualify for government benefits? In an SNT, the beneficiary is a person with disabilities. The trustee manages and uses the trust assets for the beneficiary, while the beneficiary has limited authority to control or withdraw those assets. Your loved one can therefore benefit from assets in the SNT without having the same access to them that they would have if they owned the property outright.
Many of the government programs that disabled individuals rely on for support limit eligibility to individuals with limited income or financial resources. These means-tested benefits include programs such as Supplemental Security Income (SSI), which imposes financial eligibility requirements, and Medicaid, which limits income or resources, depending on the eligibility pathway.
If your loved one receives a means-tested benefit, providing them with property directly may risk making them ineligible. By setting rules and restrictions that limit what the government considers as belonging to your disabled loved one, your SNT can provide support while they continue to qualify for benefits.
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How Do You Fund and Use a Special Needs Trust?
Before your trust begins operating, you need to transfer assets into it to fund it. Where the assets come from can affect your design and funding strategy. Once you transfer assets to the trust’s name, the trustee begins to manage it according to the trust’s terms.
How Does Funding Source Affect the Trust?
The source of the assets used to fund a special needs trust affects how the trust must be structured and what rules apply. Your special needs trust attorney determines who owns the assets before placing them into an SNT.
Third-party SNT
A third-party SNT holds assets that belong to someone other than the beneficiary. If you want to set aside your own money for a loved one with disabilities, you can fund a third-party SNT during your lifetime or arrange for your assets to enter the trust through your estate plan. Because the assets belong to you before they enter the trust, you can generally decide what happens to the remaining property in the trust once your loved one no longer needs it.
First-party SNT
A first-party SNT owns assets that came from the beneficiary. Your loved one might need this type of trust after directly receiving a settlement or an inheritance. First-party SNTs must satisfy additional legal requirements to maintain eligibility for benefits, including reimbursement of Medicaid from qualifying assets that remain in the trust after the beneficiary dies.
Pooled SNT
A pooled SNT is a unique third option. A nonprofit organization establishes and manages a pooled trust, combining assets for investment and management while maintaining a separate account for each beneficiary. Depending on the arrangement, a beneficiary may transfer their assets into a pooled account or use assets provided by someone else. Your attorney can determine whether a pooled trust is appropriate based on the funding source, amount involved, benefit requirements, and your loved one’s needs.
How Can the Trustee Use Trust Assets?
Your attorney helps you design your trust terms, including delineating how the trustee must perform their role. Those terms must state what the trustee can do with your special needs trust fund. Depending on the circumstances, trust property may pay for:
- Education—tuition, training, books, and other educational expenses;
- Transportation—for appointments, work, classes, recreation, or other activities;
- Technology—computers, communication devices, assistive technology, and other useful equipment;
- Recreation—hobbies, entertainment, travel, and other activities that improve quality of life; and
- Personal services—appropriate care or professional services that other programs do not cover.
A properly structured SNT can give a trustee a way to manage and use those assets for your loved one while accounting for the government programs they receive. Having an experienced attorney draft your SNT helps ensure your special needs planning has the structure it needs to help those you care about most.
Create an SNT That Fits Your Loved One
An SNT should reflect the property you want to provide, the benefits your loved one receives, and how you expect the trust to support them. An attorney can bring those pieces together before you transfer property. Your attorney can identify the appropriate SNT, draft its provisions, coordinate funding, explain the trustee’s responsibilities, and provide guidance when a proposed distribution could affect benefits.
At Willis Law Group, we focus exclusively on elder law and estate planning. We can help you determine the appropriate SNT structure, coordinate your assets with the trust, and prepare the trustee to carry out your plan. If you are considering a special needs trust for a loved one in Hackensack, Jersey City, Morristown, Red Bank, or another New Jersey community, contact us today.
Legal References Used to Inform This Page
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