The Weekly Scenario: When Is A Special Needs Trust Useful?
Question: Are there times a special needs trust would be useful outside of protecting a beneficiary from receiving government support in a means-tested program?
Answer: Special needs trusts are used for a number of situations. The most common are for chronic physical or mental health issues. Special needs trusts can protect an inheritance passing to a child or other family member from becoming a resource that can knock that person off of public benefits. Federal and state governments have a number of entitlement programs available to support the disabled, but the majority of these programs are ‘means tested’ – that is, you qualify for aid only if you don’t have too many assets or, in some cases, too much income.
A special needs trust may also be useful in protecting a loved one who is trapped in a drug or alcohol addiction. The funds in the trust can be managed by a Trustee to provide for basic physical needs and rehabilitation expenses while preventing its confiscation for reimbursement to government programs and also preventing its use for harmful substances or other abuse.
Comment: Some ‘special needs’ trusts are really in fact, purely ‘discretionary’ trusts where all authority for making disbursements is ceded to a Trustee who can turn on and off the trust ‘spigot’ without regard to any specific standard. Some planners prefer to give specific direction to the Trustee in terms of the types of expenses that are covered by the trust. Others, leave the direction open and just hope that the Trustee exercises good judgment in making distribution decisions.
As always, if you have any questions or would like to learn more, please contact Steve Shane at firstname.lastname@example.org or .
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Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
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