When planning a disabled loved one’s future, it’s important to ensure they receive the necessary financial support without making them ineligible for public assistance programs like Social Security and Medicaid.
One of the most effective tools for this is a Special Needs Trust (SNT). At Inman, Stadler & Hill, our Knoxville estate planning lawyers can guide your family through every step of establishing an SNT tailored to your loved one’s needs.
What Is a Special Needs Trust?
An SNT is a specific type of trust designed to support individuals who are physically or mentally disabled or chronically ill. An SNT allows a beneficiary to receive financial support without risking their eligibility for government assistance programs.
These programs, including Social Security and Medicaid, often have strict income and asset limits. By establishing an SNT, funds provided to the beneficiary aren’t counted toward these limits. This allows the recipient to maintain their public assistance benefits.
There are two main types of SNTs:
Third-Party SNT: This trust is funded by someone other than the beneficiary—typically a family member. It can be funded with gifts, inheritances, or life insurance proceeds.
Self-Funded (or First-Party) SNT: This trust is created using the beneficiary’s assets—often from a legal settlement or inheritance. While this type of trust is still eligible for certain government benefits, it is subject to Medicaid repayment rules upon the beneficiary’s death.
Who Is Eligible for a Special Needs Trust?
To qualify for an SNT, the beneficiary must meet specific criteria:
Physical or Mental Disability: People with conditions that substantially impair their ability to work or live independently are often eligible for an SNT.
Chronic Illness: People with long-term, debilitating illnesses may also qualify for SNTs.
How Does a Special Needs Trust Work?
An SNT is created by a grantor, which is typically a family member or legal guardian, who place assets in the trust to support the beneficiary. This process is often done with the help of an estate planning lawyer or law firm.
The grantor appoints a trustee to manage these assets according to the terms set out in the trust agreement. The trustee is responsible for making disbursements to pay for items or services that enhance the beneficiary’s quality of life but aren’t covered by government benefits.
SNT funds can be used for many different needs, including:
Caretaker Expenses: Paying for in-home assistance, whether a full-time caregiver or occasional help with daily activities.
Medical Expenses: Covering out-of-pocket healthcare costs such as therapies, treatments, or medications not included in government-provided healthcare plans.
Transportation Costs: Funding for vehicles modified for accessibility, public transportation, or rideshare services to help the beneficiary live more independently.
Recreational Activities: Quality of life isn’t just about essentials—it’s also about enjoyment. SNTs can fund recreational activities, including classes, hobbies, or even trips that allow the beneficiary to enjoy life more fully without risking their benefits.
What Are the Benefits of a Special Needs Trust?
An SNT can benefit both the beneficiary and the family by:
Maintaining Eligibility for Government Benefits: Since the assets in an SNT are not counted toward income or asset limits, the beneficiary can receive supplemental support without losing access to Social Security or Medicaid.
Protecting Assets: An SNT is irrevocable, which means it can’t be altered or terminated without the beneficiary’s consent. This protects the funds from creditors or legal claims and ensures they’re available for the beneficiary’s needs.
Customizing Support: A well-structured SNT can cover a broad spectrum of needs. This allows the family to tailor support to meet the beneficiary’s unique situation.
When Do the Benefits of a Special Needs Trust End?
An SNT typically ends upon the beneficiary’s death. At that point, the trustee will disburse any remaining funds as directed by the trust agreement.
For self-funded trusts, Medicaid is entitled to reimbursement for services it provides to the beneficiary. In the case of third-party trusts, the grantor can specify the remainder beneficiaries to inherit the trust assets once the primary beneficiary passes.
How Can a Lawyer Help Create a Special Needs Trust?
Creating an SNT involves more than just setting aside funds. It also requires careful planning and a deep understanding of legal requirements and government regulations. An experienced lawyer can help ensure the trust meets all necessary criteria to protect the beneficiary’s eligibility for public benefits by:
Choosing the Right Type of Trust: A lawyer can help determine whether a third-party or self-funded trust best suits your situation. This ensures that the trust type aligns with your financial and caregiving goals.
Drafting Clear, Compliant Terms: SNTs must be worded precisely to avoid jeopardizing the beneficiary’s benefits. An attorney will draft the trust documents to outline the best use of the funds, the trustee’s role, and the protections in place for the beneficiary.
Guidance on Funding Sources: A lawyer can advise you on the best ways to fund the trust, including using life insurance proceeds, inheritances, or personal assets, while minimizing tax implications and maximizing long-term benefits.
Ongoing Legal Support: Trust management doesn’t end after the initial setup. A lawyer can provide ongoing advice to ensure the trust complies with evolving regulations, keeping your loved one’s financial support secure over time.
Let Our Knoxville Estate Planning Lawyers Help You Establish a Special Needs Trust
At Inman, Stadler & Hill, we understand the importance of safeguarding your loved one’s future, and we have the experience to guide you through setting up an SNT.
Our team can help you choose the right type of trust, identify suitable funding sources, and craft a plan to meet your family’s goals. Contact our Knoxville estate planning lawyers today for a consultation to discuss how an SNT can help you protect your loved one’s future.
