What is a Special Needs Trust?

Sometimes people come to my office with unique circumstances that require special attention in how to handle their wealth.  They are not actually trying to preserve wealth as described by contemporary definition, rather they are attempting to preserve their livelihood – namely they are disabled and wish to preserve their support payments through the government.

They tend to be in one of two broad situations where either 1) relatives are looking to provide financial assistance to them or 2) they are about to inherit some assets.  Sufficient to say that if they receive that financial assistance, then the support payments that are being paid by and through the government will cease – and will also likely be prevented from resuming for some time.  The resolution of this problem is a Special Needs Trust.

The Special Needs Trust definition according to Black’s Law Dictionary: “A supplemental fund given to a person with a disability that does not jeopardize any government support payments.”  That tends to be an interesting definition, but it needs to be unpacked. 

A Special Needs Trust is setup for an individual under disability, or for a person that is likely to be determined to be disabled.  This determination can be completed by a court of law or, more often, it is determined by departmental review by the government.  A person, whether currently disabled or soon to be adjudged to be disabled, is a “Beneficiary” under the current Special Needs Trust terminology.

The “Trustee” under the Special Needs Trust is the person empowered and authorized to manage the Special Needs Trust.  This authorization comes with many duties including; getting an EIN Number from the IRS, working to file taxes (either completing the taxes themselves or hiring an accountant to complete the taxes) managing the assets of the Special Needs Trust so that “waste” under law is not committed, and many, many other duties.

A very important duty of the Trustee is to understand that certain governmental departments have differing definitions of a disabled individual under law – and must be examined with the governmental department that the Beneficiary is receiving support payment to get the applicable definition.

The Trustee’s review does not stop with the understanding of the required duties, both by nature of their role as Trustee and the definitions provided by the government.  A lot also depends on the language drafted in the Trust as to what the supplemental items that a Special Needs Trust can distribute.  One of the important guidelines that a Trustee must follow with a Special Needs Trust is that the support provided by the Special Needs Trust is supplemental as opposed to being the primary support for the Beneficiary.  The primary support under law is the government, and if the government determines that the support being provided by a Special Needs Trust is more than what the government’s guidelines determine, then the Beneficiary’s support payments may very well be in jeopardy.

Personal hygiene products tend to be permitted.  Cash and gift cards will be rejected – those items tend to be counted as income under government rules. As a general rule, food and housing expenses are items that can (and will) reduce or even eliminate support payments. Housing expenses, as an example, can be the mortgage, rent, taxes, heating, utilities, garbage, etc.

Typical language in Special Needs Trusts for entertainment is “entertainment items such as televisions, DVDs, video games and electronic and digital equipment; communications’ equipment such as phones or computers; special training and educational programs; transportation and related costs to visit relatives and friends; and the like”

If the Beneficiary of a Special Needs Trust does not have a vehicle, then the Special Needs Trust can purchase the vehicle – in the Special Needs Trust’s name only. The Beneficiary can then use the vehicle. However, that is not the end of the review of the vehicle, it also depends on the type and nature of the vehicle. A van that accommodates a disability and is necessary for mobility is perfectly fine and will not trigger a reduction or elimination of support payments. A forty-five thousand dollar motorcycle that would be used for personal fun is an item that will likely trigger a review and may cause a reduction or elimination of support payments.

Lastly, if a board-certified physician prescribes a certain course of treatment, then the Trust is permitted to pay for that treatment.  Proper documentation must be collected and preserved in the Special Needs Trust’s records so that the Trustee can prove to the various governmental departments, including the IRS, that the items were ordered by a board-certified physician and are within the bounds of the Special Needs Trust.

It is highly advisable to discuss with a competent attorney when dealing with your Special Needs Trust. Call our office today at 540-443-9255, or email at [email protected] to discuss your estate planning needs with an experienced estate planning attorney.