Image of Home Logo

Personal Wealth Services

Related Resources

Personal Wealth Services

T&E TALK: Provide for the Disabled with a Special Needs Trust

Scott T. Ditman, CPA/PFS 08.20.2018 | T&E TALK

If you have a child or other family member with a disabling condition that requires long-term care or prevents (or will prevent) the individual from supporting him- or herself, consider establishing a special needs trust (SNT). Also known as a supplemental needs trust, an SNT allows you to enhance a family member’s quality of life without jeopardizing eligibility for government benefits, such as Medicaid or Supplemental Security Income (SSI).

An SNT Primer

An SNT is an irrevocable trust designed to supplement, rather than replace, government assistance. Generally, the trust is funded by someone other than the beneficiary, though in certain instances a beneficiary’s assets may be used to fund the trust.

To preserve eligibility for government benefits, the beneficiary can’t have access to the funds, and the trust must be prohibited from providing for the beneficiary’s “support.” That means it can’t be used to pay for medical care, food, clothing, shelter or anything else covered by Medicaid or SSI, such as the basic medical care provided by those programs.

But an SNT can be used to pay for virtually anything government benefits don’t cover, such as unreimbursed medical expenses, education and training, transportation (including wheelchair-accessible vehicles), insurance, computers, and modifications to the beneficiary’s home. It can also pay for “quality-of-life” needs, such as travel, entertainment, recreation and hobbies.

Careful Drafting is Essential

To ensure that an SNT doesn’t disqualify the beneficiary from government benefits, it should prohibit distributions directly to the beneficiary and prohibit the trustee from paying for any support items covered by Medicaid or SSI. Some SNTs specify the types of supplemental expenses the trust should pay; others give the trustee sole discretion over nonsupport items.

Like many trusts, most SNTs contain spendthrift language to protect the trust assets against creditors’ claims. Also, in some states, it may be necessary to include specific language providing that the trust is an SNT, that the funds are intended for only nonsupport purposes and that your intention is to preserve the beneficiary’s eligibility for government benefits. In other states, simply designing the trust as a discretionary trust may be sufficient, but it can’t hurt to include SNT spendthrift language just to be safe.

Communication is Key

If you establish an SNT, communicate your plans to everyone concerned. Otherwise, well-meaning relatives or friends might inadvertently undermine your strategy by making gifts or bequests directly to the special needs person.

Contact both your estate planning attorney and us and together we can work to see that it is crafted in the most effective manner. You can reach me at SDitman@BerdonLLP.com or contact to your Berdon advisor.

Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.
Personal Wealth Services LEAD ADVISORS View All