Special Needs Trusts Resources

• Overview

Special needs trusts, also known as supplemental needs trusts, are irrevocable trusts established for the benefit of physically or mentally disabled individuals.

Benefits of a Special Needs Trust

There are several advantages to establishing a special needs trust. Significantly, special needs trusts protect the assets of disabled adults while maintaining their eligibility for governmental support programs.

• Asset Protection. A disabled individual may lack the mental capacity to manage their own financial affairs. A special needs trust ensures that the individual's assets will remain under the control of an appointed trustee. The trustee has a duty to protect the assets of the trust and to act in the best interest of the disabled individual at all times. While the funds may not be given directly to the disabled individual, they may be used to pay for education, medical expenses, personal care attendants, or any other goods or services that benefit the individual. Additionally, the funds in the trust account are not subject to creditors or seizure. Thus, the funds will remain available to care for the disabled individual at all times.
• Preservation of Governmental Benefits. If a disabled adult holds more than $2,000 in assets, the adult will not qualify for the Social Security Administration's Supplemental Security Income Benefits (SSI). In addition to providing the individual with a monthly stipend, SSI eligibility qualifies a disabled individual for other governmental programs including Medicaid and food stamps. Because a disabled individual has no control over the money or assets in a special needs trust, the contents of the trust are not considered when calculating the individual's total assets. Special needs trusts thus ensure that disabled individuals will remain eligible for governmental benefits regardless of the actual value of their total assets.

Creating a Special Needs Trust

Special needs trusts are authorized and governed by the federal Omnibus Budget and Reconciliation Act (OBRA-93). A special needs trust may be set up by a family member, guardian, caregiver or friend, and must be created before the disabled individual's 65th birthday. The person establishing the trust must execute a trust document, appoint a trustee, and fund the trust.

• The Trust Document. The trust document for a special needs trust must contain certain language. Among other requirements, the trust document must state that it is intended to provide a disabled individual with supplemental and extra care over and above that which is provided by the government. The trust document must also name a trustee and enumerate the trustee's powers.
• Appointing a Trustee. A trustee is typically a family member, family friend, financial professional, bank or other financial institution.
• Funding the Trust. Special needs trusts may be funded by any type of asset, including inheritances, insurance proceeds, settlement proceeds, income, or lump-sum payments from Social Security Disability or SSI.

Cooperative Master Trusts

Cooperative master trusts, also known as a "pooled" trusts, are a type of special needs trust established by non-profit organizations on behalf of their members. Cooperative master trusts provide the same benefits as standard special needs trusts. However, instead of benefiting an individual, the pooled funds address the needs of all the members of the organization. For example, a group home for disabled individuals may establish a cooperative master trust that provides for all individuals within the home. Family members or others may contribute funds to the trust. The money placed in the pool, however, cannot be withdrawn and individual family members cannot direct how the funds will be used.