The Need for a Special Needs Trust

A special needs trust is a trust established for the benefit of a disabled beneficiary who is entitled to receive government assistance. The intent of the trust is to provide the beneficiary beyond supplemental assistance without accidentally turning off that federal aid “tap.” Correct wording of this type of trust is very important as errors can result in the loss of government assistance or income from the trust.

Payment of income and principal should be left entirely to the trustee’s discretion and the beneficiary should never be given the option of acting as their own trustee. Additionally, cash payments should never be made directly to the beneficiary. Instead, the trust must simply pay for the items the beneficiary needs. This is important because any money the beneficiary receives may reduce their Supplemental Security Income or may even cause a complete loss of Medicaid benefits.

The beneficiary, or his guardian, will request the trustee to make a distribution. The trustee will consider whether or not to be allowed to make the distribution and whether making the distribution is in the best interest of the beneficiary. If the trustee agrees to the distribution, the trustee will pay for the good or service directly from the trust account to the seller.

Protective wording should be inserted into the trust to clarify that the trustee must spend the income and principal only after federal, state, and local public assistance has been received and exhausted. The proceeds and principal must only be used for the benefit of the beneficiary. A waste provision must also be included in the trust to prevent the possibility of the government seizing the trust property to receive reimbursement of your public assistance payments.

Choosing an attorney to draft a special needs trust is not always an easy task. Drafting a special needs trust is a highly specialized process and you want someone who has experience in this area. Choose someone you can trust and feel comfortable with because the Special Needs Trust will last the life of the beneficiary and your attorney will be a crucial part of your financial team.