When setting up a special needs trust, one important consideration is that it must be set up so that the beneficiary of the trust will not lose her existing government benefits, such as SSI and Medicaid. If done wrong, the entire contents of the trust will end up being paid out for medical bills or other costs until the trust is depleted. If set up properly, the trust will be there to ensure your loved one is able to maintain a decent standard of living when you are no longer there.
Decide if you want the trust to be revocable or irrevocable. A revocable trust might be helpful if you think you might need to take the assets back out of it at any point, but it is also subject to claims by creditors as well as estate taxes when you die. An irrevocable trust means that you cannot change your mind and access any of the funds or alter any of the terms, but it also means the funds in it are not subject to probate, estate taxes or claims by creditors.
Establish a trust account for the special needs beneficiary. The complications involved in a special needs trust make it advisable to seek the assistance of an experienced attorney. A mistake could cost the beneficiary all of her government benefits and the cash in her trust fund as well. Check with the Bar Association in your state for a referral service that can help you find the type of lawyer that you need.
Determine the terms to be included in the trust. Consider that the trust must be established by someone other than the person with special needs, it must be managed by a trustee that can use his discretion when providing funds to the beneficiary, and it should make clear that the trust cannot pay out more in benefits than the government allows.
Sign the final version of the trust documents. Trust documents are legal forms and must be signed and notarized in front of witnesses.
Locate a trustee to manage the account and a custodian to hold the assets. You can be the trustee, but your trust documents should also assign a successor such as a sibling or another trusted relative. The custodian is typically a bank that holds the funds in the savings account.
Create a savings account at a bank, credit union or other financial institution. This account must be placed into the trust so it will not belong to an individual but instead will belong to the trust itself. In most cases you can add to this savings account at any time, but once you put money in it you no longer have access to those funds. Build the account so that there will be enough money in the trust to care for your loved one after you die.
Consider adding a life insurance policy to the trust, to provide an additional source of funding for the beneficiary in the future. Making it part of an irrevocable trust will offer tax benefits to your beneficiary.
When setting up a special needs trust savings account, you should consult with an attorney to make sure it complies with the law in every detail. If you don’t, you run the risk of the trust not being recognized and the beneficiary would then lose her benefits.
- National Special Needs Network; Supplemental Needs Trusts: Some Frequently Asked Questions; Jeffrey H. Minde
- Social Security Administration: Understanding Supplemental Security Income -- SSI Spotlight on Trusts
- Bay Financial Associates: The Irrevocable Trust
- State Bar of California: Lawyer Referral Services
- FDIC: Trust Examination Manual: Bank Trustee and Custodial Responsibilities
- Internal Revenue Service. "Instructions for Form 5227: Split-Interest Trust Information Return," Pages 1-2. Accessed July 24, 2020.
- Consider adding a life insurance policy to the trust, to provide an additional source of funding for the beneficiary in the future. Making it part of an irrevocable trust will offer tax benefits to your beneficiary.
- When setting up a special needs trust savings account, you should consult with an attorney to make sure it complies with the law in every detail. If you don’t, you run the risk of the trust not being recognized and the beneficiary would then lose her benefits.