Caring for a child with special needs adds additional responsibility to a family’s finances. It includes ensuring the child is provided for throughout his life, especially after parents or guardians are no longer able to provide that care. One solution is establishing a Special Needs Trust for the child. A trust is a legal arrangement to hold money or property that the grantor (the person who sets up the trust) leaves for the beneficiary (the recipient of the trust funds). A Special Needs Trust is a specific type of trust designed to provide for someone who does not have the capacity to care for their own future financial matters. In this case, the parent or guardian is most likely the grantor and the child is most likely the beneficiary.
A Special Needs Trust may also be called a Supplemental Needs Trust. Generally is it a stand-alone document, but it can be part of a Last Will and Testament. Supplemental Needs Trusts have been in use for many years and were given an official legal status by the United States Congress in 1993. Unlike giving a gift or an inheritance with a will, a trust generally has carefully written instructions on how and when to use the available funds.
Parents or others can set up a trust while they are still alive or as part of their will. If parents set up the trust while they are living, they can be the trustee or manager of the trust. Parents may also assign that responsibility to another adult or to a financial institution.
A trust may be designed to distribute the available funds to one or more beneficiaries at certain times or under certain conditions. The terms and conditions are established by the grantor and can only be modified under certain circumstances. Some trusts make distributions to the beneficiary (or beneficiaries) over a period of time while others provide instructions to distribute those funds for specific purposes.
A Special Needs Trust allows parents to invest and save money on behalf of their child, creating a fund that can be used to provide a secure and comfortable lifestyle by meeting the child’s financial needs. In most situations, funds in a Special Needs Trust will not impact a child’s eligibility for government benefits such as Social Security, Medicaid, rehabilitative care and transportation assistance.
Because a Special Needs Trust is a legal document, an attorney is needed to set it up. A Trustee or manager of the trust will need to be named at the time it is established. While family members or close friends often serve in this role, some families may prefer designating a professional trustee to administer the funds. Choosing an appropriate trustee is one of the most important decisions to be made when establishing a Special Needs Trust for a special needs child. The responsibilities of a Special Needs Trust trustee are complex and broad-based.
Following are several factors to consider when designating a Special Needs Trust trustee:
- Is this person willing and able to meet the needs established in the trust?
- Does this person have a good understanding of the beneficiary’s situation and special needs?
- Will this person prudently and responsibly manage the trust assets?
- Will this person be willing and able to maintain the appropriate records andaccount for all transactions made?
- Does this person have the ability to prepare and file the appropriate tax returns annually?
- Is this person sufficiently responsible to assist in emergency situations regarding the beneficiary?
- Will this person maintain appropriate and adequate communication with the beneficiary and all service providers?
A Special Needs Trust is an option for families with special needs children to consider as a means to ensure their children have a secure financial future for years to come.
Note: This article is only a general overview of a Special Needs Trust. Families should work with a knowledgeable attorney or financial planner to explore other options of planning prior to establishing a trust fund or making other legally binding decisions.
Sue Lynn Sasser, PhD, is an associate professor of economics at the University of Central Oklahoma.