Special Needs Trust 101: 5 Decisions You Need to Make when Establishing a Trust
Once you’ve decided that creating a Special Needs Trust (also referred to as a “Supplemental Needs Trust”, “Disability Trust”, or SNT) is the right choice for your family, it’s time to begin the process of establishing the trust. If you haven’t done so already, you’ll want to engage a special needs/Elder Law attorney, a fiduciary, or another experienced professional to help you draft the trust document. A properly drafted SNT allows the individual to benefit from supplemental resources while still qualifying for public benefits, so it’s important to work with someone who understands the complexities of SNTs.
Along the way, there will be a number of decision points to consider; and while a professional can provide recommendations and guidance, it is helpful to think through your options before putting pen to paper. Here are some of the decisions you’ll need to make during this process:
1. What type of trust is right for you?
There are generally three types of special needs, or supplemental needs, trusts: first-party and third-party standalone trusts, and pooled trusts (which can be either first- or third- party). The type of trust you choose will largely be influenced by where the assets are coming from – either the beneficiary, the “first party” or someone else, a “third-party.”
There are additional factors that can come into play when deciding between a standalone trust (first-party or third-party) versus a pooled trust. You’ll need to consider the types of assets and the size of the trust, as well as your families’ preferences and needs when engaging with a trust administrator. Connecting with a pooled trust nonprofit organization in your region can give you a better sense of the specific benefits and support services they are able to provide, so you can make an informed decision.
2. Who will be named as trustee?
The trustee is the person or entity who manages the trust assets and ensures that funds are used in a way that aligns with the rules of the trust. You can choose to name a family member or friend as trustee or select a professional to act as trustee. Many people are tempted to choose a relative to act as trustee, but experts advise that families consider all their options before going this route. In some cases, it’s best for the family member to be able to focus on their personal relationship with the beneficiary – whether that’s as a sibling, confidant, or friend – without adding the complexity and stress of managing money and being in the position of approving or denying their loved one’s requests.
If you choose to name a professional as trustee, there are a number of experts who can take on this role. If you are establishing a non-pooled trust, this might be an attorney or fiduciary, a trust company, or a financial institution; if you are working with a pooled trust, the nonprofit and their financial partner will handle the trustee’s duties. Here are four questions you should ask a prospective trustee to make sure they are a good fit for your needs.
3. Who else will be on your trust team and support the beneficiary?
Being a trustee isn’t the only important role to consider when establishing a trust. Many families will identify other individuals in their personal and professional network to help oversee the work of the trustee, give advice about how funds should be used, act as an advocate for the beneficiary, and assist them in the supported decision making process.
Known as trust protectors, trust advisors, care committee members, and/or beneficiary advocates, these folks may be caregivers, doctors, social workers, family members, lawyers, and others who understand the beneficiary’s needs. When drafting the trust, it is a good idea to meet with people about the role you’d like them to play and outline this relationship in writing. While the trustee ultimately has final say in how trust funds are used, these individuals can play a pivotal role in maximizing the wellbeing of the beneficiary.
4. How do you want trust funds to be used?
The SNT document is also where you will outline how funds should be used. This is the rulebook trustees will turn to when deciding whether to approve or deny a request to make a purchase. Funds are typically used to pay for things like education, recreation, transportation, and medical care beyond the simple necessities of life. Supplemental Needs Trusts are intended, as the name suggests, to “supplement” public benefits payments, so funds should NOT be used for housing and food as this will reduce SSI payments because of “in-kind support and maintenance (ISM).”
5. What happens to funds after the beneficiary passes away?
While this event is hopefully in the distant future, there are decisions you need to make at the outset of planning that will impact what happens at the end of the trust. In the case of first-party trusts and many first-party pooled trusts, there will likely be some form of Medicaid payback required once a beneficiary dies. But if funds remain after this (and in the case of most third-party trusts), you can name one or multiple remainder beneficiaries to inherit the remaining funds.
While these aren’t the only choices you’ll need to make when establishing an SNT, considering these five decisions are a good starting point. Thinking through your options before you sit down with your drafting attorney can help you use your time more efficiently and get to a trust document you feel good about.