Special Needs Trusts

What Is a Special Needs Trust?

A special needs trust allows a person with a disability to receive financial gifts, lawsuit settlements, and other funds without jeopardizing their eligibility for benefit programs. This type of trust is specifically designed to pay for items that are not covered by a public or private benefits program, including recreation activities, counseling, camps, and other expenses that go beyond meeting one’s basic needs. It may also include other expenses, such as certain medical and dental costs, equipment, and specialized training and education.

Quality-of-life enhancements can also be made to the trust to allow the trustee to purchase electronic equipment, appliances, vacations, and make other financial decisions that can build self-esteem and improve the disabled person’s well-being. A special needs trust is designed solely for the beneficiary, so it is an effective financial management tool if an adult with special needs is unable to manage their own expenses or is at risk for being taken advantage of by a dishonest or predatory person.

What Expenses Does a Special Needs Trust Cover?

In most cases, people who have a physical or mental disability qualify for government benefits, such as SSI and Medicaid. Medicaid generally covers hospital services, doctor visits, home health services, and other health care expenses. SSI benefits cover expenses such as mortgage payments, groceries, property taxes, and utilities. The funds from a special needs trust should not be used for expenses that are already covered by these benefits. The following are examples of expenses that may be covered by a special needs trust:

• Medical expenses that are not covered by government benefits.
• Therapy and rehabilitation services.
• Training and education.
• Travel.
• Payments for a companion.
• Summer camps, movies, social events, and other recreation and entertainment costs.
• Vacations.

What Are the Different Types of Special Needs Trusts?

There are three different types of special needs trusts, depending on the type of assets and management, including the following:

• First-party trust: This type of trust helps individuals who became disabled as a result of an injury. They are funded by the disabled person’s own funds and may be used for their own benefit. This is often the case if the person with special needs received a sizable inheritance or legal settlement. A first-party special needs trust allows the beneficiary to transfer their settlement and assets into the trust. This allows them to pay for future expenses while remaining eligible for their needs-based government services and programs. When the beneficiary passes away, the remaining assets may be claimed by the government in order to reimburse them for the costs paid by the government programs.
• Third-party trust: This provides financial stability for an individual who has a disability that prevents them from being able to live alone or earn an income. Whereas a first-party special needs trust is funded by the beneficiary, a third-party special needs trust is funded by a family member or another third party for the beneficiary. With a third-party special needs trust, there is no limit to the number of assets allowed in the trust, the beneficiary can use the funds for anything they need, the government has no claim on assets in the trust, and the trust will not prevent the beneficiary from being eligible for government benefits.
• Pooled trust: This is designed for people who have limited assets or for families who do not have someone who is willing or able to act as a trustee. This type of trust is administered by a non-profit organization that collects from a number of beneficiaries with special needs. Each person has their own account, and the funds are administered together in an effort to keep costs down and simplify the administration process. Pooled trusts do have the government reimbursement requirement like a first-party trust. In addition, a portion of the remaining assets must be passed on to the non-profit organization as payment for managing the trust.

According to the New Jersey Division of Medical Assistance and Health Services (DMAHS), only a parent, grandparent, guardian, or the court may establish a special needs trust in the state. In addition, the trusts may not be revoked by the grantor or donor.

When setting up a trust, there are a number of factors that will need to be considered, including the beneficiary’s age, the type of assets they are expected to have, and who will be responsible for managing the trust. In addition, the fund must be set up before the disabled person reaches 65 years old.

If the beneficiary is under 18 years old when the trust is set up, the trustee must execute a bond in order to protect the child’s funds or get permission from the court to avoid this step. The trust must also address whether the beneficiary is likely to be competent as they get older.

Who Should be Selected as a Trustee?

Selecting a trustee to manage a special needs trust is an important decision that should not be taken lightly. It is important to choose someone who is trustworthy, comfortable with managing money and assets, and who has the beneficiary’s best interests at heart. A trustee can be an individual or a corporate entity, and both are entitled to a commission for their services. Similar to a personal bank or brokerage account, certain fees will apply to accounts owned by the trust. The following provides an overview of the different types of trustee options:

Who Benefits From a Special Needs Trust?

The main goal of a special needs trust is to maximize the financial resources available to the person with a disability and enhance their quality of life as much as possible. There are a number of people who can benefit from this type of trust, including the following:

What Are the Most Common Reasons for Establishing a Special Needs Trust?

There are a number of compelling reasons why families decide to set up a special needs trust for a loved one who has a disability, including the following:

New Jersey Estate Lawyers at Lyons & Associates, P.C., Help Clients Form Efficient Special Needs Trusts

If you wish to establish a special needs trust for a family member who has a disability, do not hesitate to contact our New Jersey estate lawyers at Lyons & Associates, P.C. We will assist you with every step of the process, including establishing who should act as trustee and the type of trust that best meets the beneficiary’s needs. To schedule a free consultation, call us today at 908-575-9777 or contact us online. Located in Somerville and Morristown, New Jersey, we serve clients throughout Somerset, Woodbridge, Morristown, Parsippany, Rockaway, Short Hills, Chatham, Randolph, Madison, and Morris Plains.