When Do You Need A Special Needs Trust Attorney? (2023)

“People with disabilities or functional needs can receive financial support with a special needs trust, also known as a supplemental needs trust, without negatively impacting their means-tested government benefits, such as Medicaid or Supplemental Security Income (SSI).”

When Do You Need A Special Needs Trust Attorney? (1)

Need A Special Needs Trust Attorney

Benefits based on needs have income and asset limits, which we can reduce or eliminate by receiving financial gifts or assets.

If you have an adult daughter with autism who receives SSI benefits and wants to give her money to help her live, she will not be eligible to receive government benefits based on needs. If you die and leave her your Roth IRA worth hundreds of thousands of dollars, or any amount exceeding the asset limit, she won’t be eligible for SSI or Medicaid benefits.

We can place the assets into a special needs trust for your daughter if you want to continue supporting her financially.

In addition to food and shelter, the beneficiary should use the money for other expenses. We can spend money properly, keep receipts or create a spreadsheet. This post will guide you about When Do You Need a Special Needs Trust Attorney? Let’s take a look at it!

Benefits of a special needs trust

When you establish a special needs trust for someone, you can enhance their quality of life and give them peace of mind. A special needs trust ensures they can care for themselves throughout their lifetime, no matter what.

Special needs trusts offer the following benefits:

  • The government can still provide your loved one with benefits based on their needs.
  • Creditors and lawsuit winners may not be able to access trust funds or assets.
  • Trustees or financial advisors can invest in trust funds.
  • If the beneficiary dies, you can choose who inherits the trust.
  • Due to trustees’ fiduciary responsibility, trusts protect against financial abuse.

Types of special needs trusts

The common type of special needs trust is a third-party one, but you should consider how to fund which type is right for your loved one.

Third-party special needs trust

Parents, grandparents, or guardians can open and fund this type of special needs trust. The trust is revocable or irrevocable. A third-party special needs trust isn’t just for disabled people; people with financial difficulties can also use it. We can use it for those dealing with substance abuse, gambling addictions, or anything else that might hinder their ability to manage their own money. In this case, we can call the trust a spendthrift trust.

Third-party special needs trusts can name secondary beneficiaries for the remaining funds when the original beneficiary passes away.

It is possible to establish an independent special needs trust in two ways:

  • Standalone trust: This is the best option if you plan to provide financial support for your loved one for the rest of your life and if you have siblings or friends who may also wish to contribute. Trusts created this way don’t need to be part of wills or trusts, so they become effective immediately after you die.
  • Testamentary trust: You can easily create a testamentary trust if you’re planning your estate and want to leave the trust to a beneficiary without giving them immediate access. Instead of creating a standalone trust, this method creates a special needs trust under your will or trust, which isn’t funded until your death.

First-party special needs trust

First-party special needs trusts are funded by beneficiaries’ assets instead of third-party trusts. Those with functional needs who are mentally capable can set up and fund their first-party trust, thanks to a section of the 21st Century Cures Act. A relative, guardian, or court can also set up the trust using the beneficiary’s assets.

A Medicaid repayment provision is usually included in first-party special needs trusts instead of third-party trusts. In some states, the assets in the trust are not protected from creditors, so if any money remains after a beneficiary dies, it goes to the listed beneficiaries. If anything remains, it goes to the listed beneficiaries.

A person may use this type of trust with functional needs who have received a windfall, such as medical negligence settlements or inheritances. It may also be ideal for someone who has existing assets and becomes disabled but requires means-tested benefits.

A first-party special needs trust must be irrevocable, have a beneficiary with a disability, and be under age 65 at the time of its establishment.

Pooled trust

In pooled trusts, multiple beneficiaries share trusts across first-party and third-party trusts. These trusts are typically managed and invested as a single entity, with separate accounts for each beneficiary.

The nonprofit also manages pooled trusts as a trustee, administers funds, makes investment decisions, and meets tax obligations. People often choose pooled trusts for their convenience and oversight.

When a beneficiary of a pooled trust dies, what will happen to the funds depends on the state where you live and the trust’s structure.

  • First-party pooled trust: State law determines whether the trust keeps part or all of the funds. After reimbursement, Medicaid must receive the remaining funds. Typically, whatever is left over goes to designated beneficiaries.
  • Third-party pooled trust: Medicaid recipients usually do not have to repay the trust. There is a possibility, however, that a portion of the remaining funds will go to the nonprofit.

Set up a special needs trust

When Do You Need A Special Needs Trust Attorney? (2)

Set up a special needs trust.

Be mindful of what you wish for the person you love

In this, you will decide how you will distribute the funds. Consider these factors:

  • The amount and duration of the money they need.
  • You can specify how often you want them to receive money.
  • The amount you would like to give them.
  • Using the money to meet needs.
  • When they die, what happens to any remaining trust money?
  • Asset control will be in their hands.

Choose trustees

You can choose contingent trustees as a backup if one trustee becomes ill. A trustee will manage, invest and disburse funds for your loved one. As soon as you select your trustees, you’ll need to sign the trust document to transfer assets.

In many cases, we can choose a trusted relative as the trustee. However, Simasko suggests you consider whether the costs of using a lawyer or a bank are worth it.

It is possible that some lawyers will recommend you choose them for trusteeship or a bank to be trusteeship, and they will do a good job. Simasko says that the bank’s fees will be so high that it will be one of the main beneficiaries of your estate as a result.

Create your trust

The wording in the trust documents is crucial; even though you can set up a special needs law, trust yourself. To avoid disqualifying beneficiaries from receiving benefits, Simasko advises partnering with a lawyer specializing in special needs trusts or an attorney specializing in special needs trusts.

After you draft the trust, all parties must sign, and it typically has to be notarized. You should also register it with the IRS so the trust can be tax deductible.

Fund it

Once all parties have signed the trust documents, it is time to fund it. Assets you can use to fund the trust include cash, investments, and life insurance policies that pay out after the policy owner dies. In addition, you can designate property in your will, on a bank or brokerage account, or in a retirement plan as a beneficiary.

A special needs law does not typically require a minimum amount to be funded.

It may seem obvious, but Simasko says people often need to remember to fund special needs trusts. You need to fund the trust appropriately to make it work properly if you spend all that money creating this beautiful trust without funding it.”

Invest your funds

We recommend moderate investments to ensure your loved one can access funds when needed. It is best to look at a moderate investment strategy, such as real estate since it can be volatile.

You should also check with your trust fund provider about what investments you can use to fund your trust.

Basic Requirements for Setting Up a Special Needs Trust?

A special needs law must include the following elements.

  • We will suggest that the irrevocable special needs or the supplemental needs trust be named in the trust document (according to the situation).
  • The trust document should include the beneficiary’s legal name and a statement designating them as beneficiaries.
  • Additionally, the language used in drafting the trust must be specific. For example, there should be only one method of distributing funds to beneficiaries.
  • The document should specify that the special needs trust is intended to provide “supplementary and extra care” that government agencies cannot provide.
  • It is the trustee’s responsibility to manage and spend the trust following its purpose.
  • Trust donations must not jeopardize the beneficiary’s eligibility to receive government benefits or help.
  • As a final requirement, the trust document must specify that the funds are to supplement government benefits, not simply maintain trust.

Key Questions to Ask:

  1. Have you worked with special needs families for a long time? How long have you been with your practice or firm? (If it’s less than five years, find out what has led to the change in jobs.)
  2. (Are you a parent as well?) Tell me why you serve special needs families.
  3. What is the primary focus of your practice or firm?
  4. In which states do you have a license to serve families?
  5. Are you familiar with any types of Special Needs Trusts? Have you ever had to request a state’s opinion on the language of a Special Needs Trust?

For a Special Needs Trust the Role of “Letter of Intent”.

Even though it is not necessary for a special trust, it is highly recommended. If drafted, the letter will inform all parties to the trust and other family members and friends about the trust’s provisions and how its funds should be used to benefit the beneficiary.

This document provides instructions on caring for the beneficiary when the settlor is no longer able to or alive. It is common to include financial instructions regarding how to distribute trust funds, information about the beneficiary (e.g., hobbies, abilities, skills, etc.), medical history, and contacts in case of an emergency in these letters.

What is a Supplemental Needs Trust?

There are a few differences between a supplemental needing trust and a special needs trust, despite the two terms often can use interchangeably:

  • Special trust is funded by beneficiaries’ assets (e.g., inheritances).
  • A supplemental needs trust does not have an age limit. The only exception is if the beneficiary enters a long-term care facility after age 64. Special needs trusts but have an age limit. Establishing and funding a special needs trust is important before the beneficiary turns 65. Once the beneficiary turns 65, no additional funds need to add to the trust.
  • Also, the government will need the trust to reimburse any Medicaid-covered expenses throughout the beneficiary’s lifetime if leftover funds are in a special needs trust when the beneficiary dies. On the other hand, a supplemental needs trust is not required by the government to repay them for the medical help it provides.

Bottom Line

Getting additional guidance from a special needs lawyer may be in your best interest if you have questions or need help with trust. Having a special needs lawyer ensure that the trust document contains all the necessary language ensures that the trust is legally enforceable and valid.

Special needs lawyers will also be familiar with the special laws that apply to these trusts and the requirements of a special need trust.

A trust lawyer can also set up the trust. An experienced trust lawyer can assist you with drafting, editing, and reviewing all complex trust documents. In addition, your attorney can assist you with drafting a letter of intent for you to send out to certain individuals. Your attorney can help you prepare and file court submissions and represent you in court if you need to file a lawsuit over the trust.

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Last Updated: 01/05/2023

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