Creating a special needs trust (SNT) is a powerful way to secure your loved one’s financial future. An SNT provides fiduciary management and oversight for individuals who cannot manage property or funds due to physical or cognitive disabilities. This helps prevent financial exploitation and ensures their needs are met without worry.
What Is a Special Needs Trust?
A special needs trust is designed to protect assets for individuals with disabilities while preserving their eligibility for government benefits like Medicaid and Supplemental Security Income (SSI). To create an SNT, you must:
- Choose the right type of trust for your family’s situation
- Select a trustworthy trustee
- Decide how to fund the trust
SNTs aren’t just for wealthy families. For example, life insurance policies often fund these trusts to maintain your child’s quality of life after you pass.
Types of Special Needs Trusts
Special needs trusts generally fall into two main categories: first-party and third-party trusts.
| Trust Type | Description | Funding Source | Payback Requirement |
|---|---|---|---|
| First-Party Special Needs Trust | Funded with assets belonging to the disabled individual, often from inheritance or settlement awards. | Beneficiary’s own assets | Yes, must reimburse government upon death |
| Third-Party Special Needs Trust | Funded by family or others using personal assets such as life insurance or retirement accounts. | Family or third parties’ assets | No, no government payback required |
Other types include:
- Pooled Special Needs Trust: Combines funds from multiple beneficiaries, managed by a nonprofit to reduce costs and increase investment power.
- Testamentary Special Needs Trust: Created via a will and effective only after the will-maker’s death.
- Medicare Set-Aside Trust (MSA): Protects government benefits when a person receives a settlement from a personal injury case.
The right SNT depends on your family’s goals, available assets, and funding sources. A special needs planning attorney can guide you in selecting the best trust type.
How a Special Needs Planning Attorney Helps
A specialized attorney plays a vital role in tailoring an SNT to your family’s unique circumstances. They will:
- Evaluate your family’s financial situation and your loved one’s needs
- Recommend a reliable trustee
- Draft the trust with clear terms for funding, distribution, and management
- Coordinate with financial planners or social workers if necessary
- Assist in funding the trust and ongoing administration
- Provide ongoing legal support and trustee guidance
Working with an attorney ensures your SNT complies with laws and protects your loved one’s government benefits.
Common Myths About Special Needs Trusts
Many families hesitate to create an SNT due to misconceptions. Here are the facts:
- SNTs are only for wealthy families.
SNTs can be funded through life insurance, retirement accounts, and even modest inheritances. - An SNT causes loss of government benefits.
Properly structured SNTs preserve benefits like Medicaid and SSI while supplementing care. - Trust terms cannot be changed once set.
SNTs can be amended or terminated if circumstances change. - Siblings will care for the beneficiary.
Relying on siblings can lead to problems; an SNT offers financial security without dependency. - It’s too early to plan.
Early planning allows time for family discussion and professional guidance. - Creating an SNT is too complicated or expensive.
While costs exist, benefits outweigh them; attorneys can help find cost-effective solutions like pooled trusts. - SNTs are only for children with special needs.
They also support adults with disabilities, spouses, or family members needing long-term care.
Ready to Protect Your Loved One’s Future?
We have offices in Sherwood, Searcy, Benton, and Little Rock. If you’d like to discuss your particular situation, please contact us here or call us on 501-834-2070 to schedule a consultation. We look forward to the opportunity to work with you.