How is a Special Needs Trust Created?

People with disabilities or other special needs often require financial assistance, which can come from multiple sources. Family members or other loved ones can provide much-needed support by assisting with expenses and in many cases, the best way to do so is through a special needs trust. This kind of trust helps ensure that a person with a disability will be able to receive financial support without jeopardizing eligibility for government benefits. An experienced attorney can help a disabled person, his or her family members, and other involved parties navigate the complexities of establishing, funding, and distributing assets through a special needs trust.

Understanding the Purpose of a Special Needs Trust

A special needs trust is designed to hold and manage assets for a person with a disability. The trust can provide financial support while ensuring that the beneficiary remains eligible for need-based government benefits like Supplemental Security Income (SSI) and Medicaid. While some special needs trusts are established by family members or others who wish to provide support, there are some situations in which disabled persons may need to establish a trust on their own to ensure that the assets they own will not prevent them from receiving the benefits they need.

Steps to Establish a Special Needs Trust

1. Determine the type of trust to use: There are two main types of special needs trusts. A first-party special needs trust is funded with the assets of the person with special needs. This type of trust may be created if a person receives an inheritance or a personal injury settlement and needs to take steps to maintain eligibility for benefits. A third-party special needs trust will be funded with assets from other people, such as parents or grandparents.
2. Consult with an experienced attorney: An attorney with experience in estate planning involving people with special needs can provide guidance on the legal requirements of special needs trusts. An attorney can ensure that a trust will be properly structured to follow both state and federal regulations and can also help determine the best type of trust to use to provide a disabled person with assistance with their ongoing needs.
3. Draft the trust document: The person creating the trust will need to specify the terms and conditions under which the trust will operate. A trustee will need to be selected, and this person will manage the trust’s assets and make distributions for the benefit of the person with special needs. The trust will provide guidelines for distribution, specifying how and when assets can be used to support the beneficiary. Remainder beneficiaries may also be named, allowing them to receive the remaining assets in the trust upon the death of the primary beneficiary.
4. Fund the trust: Once the trust is established, it needs to be funded by transferring assets into the trust, which the trustee will then manage and distribute. Assets used to fund a trust may include cash, investments, real estate property, life insurance policies, and personal property.
5. Notify relevant parties: It may be necessary to work with the Social Security Administration and state agencies that manage Medicaid benefits to ensure that the establishment of the trust will not interfere with the beneficiary’s ability to receive public assistance.

Distributing Assets From a Special Needs Trust

The trustee is responsible for managing and distributing the trust assets according to the trust document’s guidelines. Distributions should not be made directly to the beneficiary, as this could affect eligibility for benefits. Instead, the trustee can use the trust assets to pay for:

• Medical and dental expenses not covered by Medicaid
• Educational and vocational training
• Personal care attendants
• Rehabilitation
• Transportation
• Entertainment and recreation

These distributions should always be made directly to service providers or vendors rather than to the beneficiary to avoid impacting the beneficiary’s benefits.

Contact Our DuPage County, IL Special Needs Trusts Attorney

Establishing and managing a special needs trust is a complex process that requires careful planning and knowledge of the applicable laws. For assistance with creating a special needs trust, contact the Naperville estate planning lawyer at the Gierach Law Firm today. Call 630-228-9413 set up a consultation and begin taking steps to ensure that a person with a disability will receive the support they need.