Kamilla Mishiyeva, Esq., Founder of Mishiyeva Law, PLLC.

A Special Needs Trust, also known as the supplemental needs trust, is a unique type of trust designed for those who are disabled or have a mental condition that makes it extremely difficult or impossible for them to manage their own finances. The property, whether it is a house or cash, is transferred into the trust and subsequently managed by one person or entity for the benefit of the incapacitated person. The individual or organization that manages the trust property is called the “trustee” and the person who benefits is called the “beneficiary.” It is often the case that the trust provides for the lifetime of the beneficiary, however the assets of the trust may long become depleted before then.

A special needs trust is tailored to fit the specific needs and lifestyle of the beneficiary and provide them with some financial security for the rest of their lives.  Quite often, such trusts are  recommended by estate planning attorneys so that the assets set up to provide for the beneficiary do not interfere with any government benefits that they are currently receiving.

The trustees of the trust are often family members or appointed by the court if no one else is available. Because of the nature of the trust, it is very important that the trustee be someone who places the beneficiary’s best interests at heart.

Types of Benefits

Generally speaking, disabled people who qualify for government assistance run a tremendous risk of losing such benefits if they inherit or are gifted a large sum of money.  So, instead of leaving assets to the beneficiary outright in a will, the property is transferred to a special needs trust which allows the beneficiary to continue to qualify for governmental benefits while also receiving support from the assets in the trust. This is because the trustee, and not the beneficiary, has absolute control over the distribution of the trust assets. Pursuant to the terms of the trust, the beneficiary must have no control and say when and how the assets must be distributed. The beneficiary cannot request that the trustee pay for a five-star vacation to Hawaii or that the trustee transfer $5,000.00 on a monthly basis to the beneficiary’s checking account. The trustee must follow the written guidelines left behind by the grantor of the trust.

A special needs trust is commonly set up in three of the following instances: a grantor sets up a special needs trust for a loved one such as a child that is currently receiving public assistance in the form of Social Security benefits and Medicaid health insurance. A plaintiff that prevails in a lawsuit transfers the proceeds into a special needs trust in order to avoid losing their monthly government assistance. Instead of transferring the assets under a will to a beneficiary outright, the funds are allocated into a special needs trust so that the beneficiary will not be disqualified from public assistance. Another big advantage of a special needs trust is that if the beneficiary is ever sued, the creditors cannot access the trust assets nor can the assets be subject to any judgment by the court.

Access to the Trust

The trustee generally uses the assets in the trust to the benefit of the beneficiary. In the event that the beneficiary is in need of something in particular that is not covered by government benefits such as new furniture, repairs to a home, tuition costs, a vehicle, physical therapy or even a vacation, recreational activities, and the hiring of a personal care aide, the trustee can use the assets to make the purchases on their behalf.

Even if the family is not concerned about government benefits for their loved on, the trust will address the potential special needs of someone who is disabled in the event that government assistance may become necessary.  The beneficiary will continue to qualify for public assistance so long as the assets remain the trust under the sole discretion of the trustee.

Pool Trusts

Another consideration is the preparation of a pooled trust that is managed by a non-profit organization. There a few reasons that people opt for a pooled trust such as the inability to find a reliable and trustworthy trustee or if it’s the case that the assets being transferred into the trust are of a relatively modest value. Pooled trusts are essentially special needs trusts that are managed by nonprofit organizations in which the funds are invested by several families. The trustee sets up a separate account for each beneficiary and is granted authority in the trust itself to spends money on behalf of each beneficiary for items not covered by government assistance. Pooled trusts which are also commonly referred to as “community trusts” are available in New York State.

Legal Representation

The creation of a special needs trusts requires the assistance of an estate planning attorney. Although some people do take the do it yourself approach, it is never recommended as the trust requires special language and provisions to be valid. The creation of a pooled trust may be undertaken without an attorney by contacting the non profit organizations specializing in such trusts directly. Even if you have decided on a pooled trust, the retention of an estate planning lawyer is advisable as they can recommend a reputable organization and review the trust and detect any errors before execution. Most people enter trust agreements without fully understanding their rights and implications under the instrument and end up hiring a lawyer a few months down the road for its termination. Terminating a trust is not an easy task and comes with a lot of red tape.

In the event that a trust needs to be created with the money of the beneficiary, and not the funds of someone else, a lawyer must be consulted. For example, if the trust is created and funded with the proceeds that the beneficiary receives under a personal injury lawsuit, rather than the money of a parent, special state rules apply.