Special needs trusts are typically set up by the parent or parents of a disabled child. These trusts are irrevocable. They can't be changed to help the beneficiary as their circumstances change. These are different from revocable trusts, which can be changed by the grantor (the individual who created the trust and who often acts as trustee) during the trust's existence, according to the American Bar Association.
But special needs trusts sometimes include early termination clauses. These clauses are usually included to allow the trustee to dissolve the trust if continuing to make distributions prevents the child from obtaining disability benefits.
Only a court can terminate a special needs trust. Attempting to dissolve the trust without court approval will result in liability on your part. Reviewing how to terminate a special needs trust will help you to understand the process better before you talk to a trustee or attorney about the process.
What Is a Special Needs Trust?
Some government benefits for disabled people are only available to those who have assets or incomes that fall below a specific threshold. With a special needs trust, the beneficiary is guaranteed assets during their lifetime, but they don't own the assets. They're placed in trust for the disabled individual so they don't count against their asset threshold, explains the Special Needs Alliance (SNA). This money could put them over the income or personal assets threshold if the beneficiary were to receive certain distributions from the trust, but just having the assets in trust won't.
You can create a first-party or third-party special needs trust in addition to a basic special needs trust which might affect the beneficiary's income and asset thresholds or otherwise affect their ability to qualify for and receive government benefits. These include Medicare, Medicaid and Supplemental Security Income, explains the SNA.
Review the Trust Document
The first step in dissolving a special needs trust is to examine the document that created it. A trust is the set of instructions that specifies how assets for a beneficiary are to be handled, who will handle them and other information about the trust. A trust fund is the actual set of assets that are placed in trust to be managed.
You have a better chance of convincing a judge to dissolve the trust if the special needs trust document includes an early termination clause. But there must be sufficient cause as outlined in the early termination clause. Special needs trusts can sometimes be dissolved if the beneficiary is no longer disabled or capable of self-care. Prepare to argue in this case that the trust is no longer necessary due to the fact that the beneficiary is now capable of living independently.
Prepare Your Request Points
You can start creating your argument for closing out a special needs trust after you know what's in the trust document. You'll have a more difficult time convincing the court to dissolve the trust if you're not the trustee. Prepare to argue that point if you're seeking to dissolve the trust to ensure the beneficiary is eligible for government benefits.
The more supporting documents you can provide, such as doctors' examinations, assessments and recommendations, the more information a judge will have and not have to keep contacting you for more information.
Contact the Court
When your paperwork is ready, have an attorney contact the court where the trust document was registered. Probate courts have jurisdiction over trusts in many states, but trusts can be overseen by the orphan's court in some states. The court where the trust document was registered is typically listed on the trust document.
Ask the clerk of the court about scheduling a hearing. Make sure you ask the clerk to assist you regarding necessary forms and procedures.
- Sometimes, special needs trusts can be dissolved if the beneficiary is no longer disabled or capable of taking care of himself. If this is the case, prepare to argue that the trust is no longer necessary due to the fact that the beneficiary is now capable of living independently.
- Only a court can terminate a special needs trust. As such, attempting to dissolve the trust without court approval will result in liability on your part.
Ellis Roanhorse has been writing professionally since 2007. His work has been published in the "Loyola Law Review," "The Portland Mercury" and "Carillon Magazine." Roanhorse holds a Master of Arts in political science from the University of Chicago and a Juris Doctor from the Loyola Marymount School of Law.