What are Special Needs Trusts for? Pros and Cons of SNTs

Woman with a young girl who has special needs

Many families who care for a loved one with a disability choose to establish a Special Needs Trust (SNT) (also known as a Supplemental Needs Trust or Disability Trust) to help manage and safeguard their beneficiary’s financial future. Establishing an SNT is a common legal and financial planning strategy for families who want to ensure that their loved ones receive the support they need to live their best lives without jeopardizing their access to government public assistance programs (also known as “public benefits”).

An SNT is a type of specialized trust designed to enable a person with a disability, the beneficiary, to receive benefits from a trust (i.e., distributions from the trust for the purchase of personal needs) without affecting their eligibility for government benefits such as Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), HUD/Section 8 subsidies, Medicare, and Medicaid.

Before deciding if a Special Needs Trust is right for your family, it is important to review the pros and cons of setting up this type of trust for a loved one.

Pros of Using an SNT

There are several advantages to establishing a Special Needs Trust for a loved one with a disability. In addition to preserving the beneficiary's eligibility for vital government benefits, an SNT can help protect the assets entitled to a beneficiary and give them an enhanced quality of life.

Preserve Eligibility for Government Benefits

The trust acts to preserve the beneficiary's eligibility for public assistance programs by placing certain assets under the ownership of the trust, not the beneficiary. In effect, the trust becomes its own separate legal entity. Therefore, because the beneficiary does not own the assets in the trust, the beneficiary may remain below the income and/or asset restrictions necessary to qualify for public benefits.

Enhance Quality of Life

When administered correctly, the beneficiary can supplement their public benefits with distributions from the trust. The trust may be used for supplemental needs such as health care not provided for by public benefits, transportation costs, personal needs, and other support services not covered by government benefits. It is important to note that funds from the trust cannot generally be used to pay for certain items such as food and shelter.

Give the Beneficiary Financial Independence

An SNT allows the trustee to manage a beneficiary's assets while still allowing the beneficiary to have some degree of autonomy over their day-to-day spending. With resources like the True Link Visa® Prepaid Card, trustees can set custom spending rules, block access to cash, and stay informed with the platforms' spending monitoring system - all of which may assist in preserving the beneficiary’s eligibility for public benefits.

Protect Assets Entitled to Beneficiary

By transferring assets to an SNT, families may ensure that the assets within the trust are distributed to the beneficiary for their intended purposes. Additionally, once placed in an SNT, the assets may be protected from creditors or any pending litigation.  Finally, the trustee administering the SNT may assist the beneficiary in protecting against fraud or undue influence.

Support a Loved One Throughout Their Life  

During the lifetime of the trust, grandparents and other parties interested in helping the individual with a disability can contribute to the SNT with cash, securities, and other financial resources.  It is always important to note the rules around contributions to a SNT before making such contributions (e.g., First versus Third-Party SNTs, over-65 restrictions, etc.)

Cons of Using an SNT

Setting up this type of trust for a loved one is a complex financial decision. In some instances, alternative approaches to a Special Needs Trust may be more favorable or cost-effective.

Set-Up and Annual Costs

There are varying costs associated with setting up an SNT – including the legal fees for drafting a SNT. In addition, to set up costs, there may be annual fees associated with managing or administering an SNT each year from a professional trustee or fiduciary.  However, these costs may be mitigated to some extent by joining a pooled special needs trust.

Repayment Rules

Certain types of SNTs are subject to Medicaid's repayment rules following the beneficiary's death. All funds left in the SNT up to the total lifetime public assistance benefits paid may be required to be paid back to the state before distributing the remaining assets to ultimate beneficiaries (also known as remainderpersons). This rule is only applicable to First-Party Trusts, making it highly advisable to speak with your attorney about this aspect.

Administrative Responsibilities

Setting up and managing an SNT is a difficult administrative responsibility that also comes with legal liability such as fiduciary responsibilities. The trustee is required to understand the rules associated with distributing the funds held in an SNT so as not to affect the beneficiary's eligibility for government benefits. The management of an SNT can be complex and time-consuming.  That is why hiring a professional trustee with experience in this area is highly recommended as is interviewing that prospective trustee to ensure that they are the right fit for you.

Is a Special Needs Trust Right for Your Needs?

Ultimately, the purpose of a Special Needs Trust is to protect the financial future of a loved one with a disability. We understand that supporting a loved one's finances can be a balancing act. Seeking the support of a trusted investment management professional can help you make the right plan for your family's unique needs.

Learn How True Link's Investment Management Services Can Help You Manage the Assets of Your Special Needs Trust

1. Nothing contained herein is offered as investment advice and should not be deemed as investment advice or a recommendation to purchase or sell any specific security. Nothing contained herein shall be deemed or construed as legal, tax, or investment advice.  Please consult the appropriate advisor regarding your specific circumstances.

The True Link Visa Prepaid Card is issued by Sunrise Banks N.A., St. Paul, MN 55103, Member FDIC, pursuant to a license from Visa U.S.A. Inc. This card can be used everywhere Visa debit cards are accepted. Use of this card constitutes acceptance of the terms and conditions stated in the Cardholder Agreement.

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