By Kristi De Rycke, Registered Assistant
In the last blog we discussed ABLE accounts. Today I want to talk about Special Needs Trusts (SNTs) as an option for an individual with special needs. These trusts are a vehicle to put money away to help with items that are not covered by SSI and Medicaid just like ABLE accounts. These funds can be used for a home, vehicle, a computer, ongoing expenses, a vacation and other things to improve the person’s quality of life (1). To avoid the payouts from the trust interfering with the person’s eligibility for public programs, the checks can be cut directly to the businesses providing the services.
There are 2 categories of SNTs. One that is funded with money from the beneficiary which is called First-Party Special Needs Trusts. These make sense if the person had assets prior to their disability, inherits money or property or receive money from a court settlement (2). This type can be broken down into 2 subtypes including a non-Pooled and a Pooled. A Non-pooled version is established for one beneficiary but the trustee can be anyone. A pooled trust has to be established and administered by a non-profit organization (3). The more common special needs trusts for kids with special needs would be a third party special needs trust. The money put into this trust can have a contingent beneficiary named if the primary one that the trust was set up for dies. This is different than the first party trust where the remaining funds are possibly taken out to cover expenses that were covered by SSI or Medicaid during the life of the individual.
How does the special needs trust compare to the ABLE account? There are no contribution limits with Special Needs Trusts like the ABLE ones that typically match the gift tax limits. SNTS would benefit someone who was disabled after the age of 26 where an ABLE account would no longer be an option. If it is a third party trust, the money that is not used for the beneficiary can go to a contingent beneficiary who does not have to necessarily be disabled. There are many different ways to set up the trust and can affect taxes based on how it is set up. The SNTs may require combined help from your lawyer or tax profession with your financial professional to set it up correctly.
By Greg Johnson
I have done work with Special Needs Trust and I am a big supporter of these tools for disabled folks. These accounts can be funded with life insurance proceeds to ensure the proper levels of care are provided after someone passes away. Protecting their eligibility for Social Security and Medicaid benefits is extremely important, so Kristi is spot on in making sure you are working with a team of advisors to make sure all the t’s are crossed and I’s are dotted. In our experience we have found that these plans do take a lot of work to administer and can seem a bit overwhelming but having the right team in place makes that work much easier. Find the right advisor, attorney, and tax professional and you will be in great shape.