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Special Needs Trusts: Planning for a Disabled Family Member

Lerch Early's Legal Update

A Special Needs or Supplemental Needs Trust is a type of trust created to ensure that the disabled beneficiary of the trust can enjoy the use of the assets in the trust during his or her life while maintaining eligibility for certain public benefits. Benefits of creating a Special Needs Trust include:

  • The beneficiary’s eligibility for certain public benefits is maintained;
  • Assets are preserved so they can be used to improve the beneficiary’s quality of life;
  • Assets are protected from the beneficiary’s creditors;
  • A vulnerable beneficiary is protected from financial exploitation; and
  • The trust provides professional management of the assets.

If you have a family member with special needs, it is important to consider the creation of a Special Needs Trust as part of your estate plan to ensure the protection of this family member. The Special Needs Trust can be created during your life or at your death through your will or revocable trust.

Funding the Special Needs Trust

It is also important to understand how to fund the Special Needs Trust. Often people will purchase a life insurance policy solely for funding the Special Needs Trust. While life insurance is not the only way to fund the trust, it does have advantages because it provides an immediate influx of cash upon the death of the insured, and in many cases one can leverage a large amount of life insurance for relatively low premiums. In all cases, it is prudent to determine how the trust will be funded and with what assets.  

Another point to consider when planning for a special needs family member is that it is likely the disabled individual is going to need significant financial resources during his or her life if he or she is unable to work. Understanding the future needs and financial picture of the beneficiary should always be a focus when setting up the Special Needs Trust. The rules for creating and maintaining a Special Needs Trust are complex, so it is extremely important to seek professional advice regarding the preparation of the trust. There are different types of Special Needs Trusts that require specific provisions, depending on whether the assets used to fund the trust belong to the disabled individual or a third party, the state where the beneficiary resides, and the type of assets used to fund the trust.  

Additionally, determining who will serve as trustee is probably the most important decision one will make when setting up a Special Needs Trust. The trustee will be responsible for managing and investing the trust assets, making distributions to the beneficiary, and complying with the rules and regulations regarding the taxation of the trust and the beneficiary’s eligibility for public benefits.  

If you have a family member who is disabled and you want to provide for him or her, a Special Needs Trust may be the best option. It would allow this family member to benefit from the assets in the trust while maintaining eligibility for valuable public benefits. Even if public benefits are not an option, structuring the Special Needs Trust so that the beneficiary is adequately protected and provided for would enhance his or her quality of life for years to come.  

Will Hellams is an estate planning attorney at Lerch, Early & Brewer in Bethesda, Maryland. He regularly works with individuals and families on estate planning strategies to reduce transfer taxation, protect and preserve assets, and facilitate the transfer of assets among family members. For more information on special needs trusts, contact Will at (301) 841-3843 or jwhellams@lerchearly.com.

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This content is for your information only and is not intended to constitute legal advice. Please consult your attorney before acting on any information contained here.

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