10 Reasons to Create Special Needs Trusts

February 20, 2011 (Press-News.org) 10 Reasons to Create Special Needs Trusts

A special needs trust ("SNT") can be established to hold assets to benefit a disabled child or grandchild during his or her lifetime. These assets generally are used to supplement public benefits a child may receive, especially as the child becomes an adult. There are two types of SNTs. One type holds assets owned by the child and contributed by the child to the SNT ("1st party SNT"). The second type holds assets contributed by third parties, such as parents, friends and relatives, to the SNT for the child's benefit ("3rd party SNT").

Listed below are ten reasons that you as a parent or grandparent should consider establishing an SNT for your child or grandchild with disabilities.

1. An SNT Can Help Establish Your Child's Eligibility for Important Public Benefits. In order to receive certain types of government benefits, an individual's assets can not exceed certain maximum amounts, which generally are low. If your child would qualify for public benefits, but has too much in the way of assets to qualify for the program, an SNT may be the answer. A properly structured 1st party SNT generally can be funded with your child's assets without jeopardizing public benefits eligibility. By contributing assets to an SNT, your child could immediately reduce his or her assets below a program's limit. For example, the Supplemental Security Income program ("SSI") limits a single individual to no more than $2,000 in countable assets. An adult child who has assets in excess of that amount could contribute excess assets to a 1st party SNT to establish eligibility for monthly SSI benefits. Common examples of the types of assets that a child might own are assets acquired through inheritance, a lawsuit settlement, or gifts they received growing-up.

2. An SNT Can Provide a Way for Friends and Relatives to Make Gifts to Your Child Without Disrupting Public Benefits. Rather than have friends and relatives give money to your child, or leave assets in their will to your child, they could give them to a 3rd party SNT. If your child has a 3rd party SNT, gifts could be made to the 3rd party SNT while your child continues to receive public benefits, avoiding a disruption of public benefits (including perhaps health insurance). The assets held in the 3rd party SNT will be available to your child to provide for his or her needs and maintain or enhance his or her quality of life.

3. An SNT Can Provide Creditor and Financial Predator Protection for Your Child. Anyone can get into debt or be duped in a larcenous scheme. An SNT can reduce these risks for your child with disabilities. When an SNT is created, a person is identified to manage and protect the trust assets for the benefit of your child. This person is referred to as the "Trustee". A Trustee can be an individual or an institution. The Trustee has a fiduciary responsibility to administer the SNT in the best interests of your child and your child (while the beneficiary of the SNT) cannot assign ownership of SNT assets to anyone else. Establishing an SNT generally is preferable to leaving assets to a sibling with the idea that the sibling will use the money for your child's benefit. In that situation, you subject the assets to risk because the sibling typically will hold the assets in his or her own name, and they could be available to the sibling's creditors or to judgments against the sibling in lawsuits, divorce or bankruptcy.

4. An SNT Provides a Vehicle for Managing Your Child's Assets. Assets held in the SNT are managed by a Trustee often without the need for Court supervision. Among their duties, Trustees decide how and what to spend for your child's benefit, in light of the public benefits program rules and the SNT's provisions. Management of SNT assets includes not only deciding how to spend the assets, but how to invest and appropriately diversify the assets.

5. An SNT Can Encourage Family Unity, Closeness and Regular Contact. If your child has siblings or relatives that live in other parts of the country, the assets of the SNT may be available to pay for your child to visit them or to have the family members travel to visit your child. The assets of an SNT can eliminate a financial hurdle preventing family and friends from regular contact with your child.

6. An SNT Encourages Your Child to Participate in the Community. The Trustee of the SNT can pay for your child to attend cultural events, museums, and points of interest around your community and beyond. The Trustee can also pay for the costs of participation in social events, appropriate sports, exercise programs and facilities, and recreation activities for your child.

7. An SNT Could Establish a Panel to Advise the Trustee on Ways to Provide for Your Child. Your child's SNT could establish a panel of individuals to advise the Trustee regarding your child's care. Each child is unique and no one document can fully outline all the present and future needs of your child. Under an SNT, you could designate a panel of individuals to evaluate your child's needs and make determinations for your child's care throughout his or her lifetime. You may select family members, friends and/or professionals who know your child to serve on the panel.

8. An SNT Could Fund a Care Manager and Advocate for Your Child. Under an SNT, Trustees may hire professional care managers and advocates to help oversee your child's quality of life. These professionals can monitor your child's living arrangements, public benefit reporting, as well as advocate for improved employment, housing, medical, and/or educational benefits.

9. An SNT Could Fund Necessary Legal, Financial and Tax Professional Assistance to Your Child. An SNT could authorize the Trustees to retain professionals to assist with legal and tax matters for your child and for the SNT itself. These services may benefit your child either in pursuing claims, obtaining planning assistance or in defending themselves from claims.

10. Your Child or Grandchild is Not Entitled Under the Law to Create Their Own SNT. Your child or grandchild cannot establish a SNT for their own benefit. If parents or grandparents take the right steps today for their child or grandchild, they can establish an SNT that can benefit the child over his or her lifetime and possibly avoid the need for court involvement in the administration of the child's assets later in life.

SNTs can be established as part of your own estate plan. Creating an SNT, funding an SNT, and making distributions from an SNT, should only be done in careful consultation with an attorney. Before contributing to an SNT, consult with an attorney to determine whether doing so may affect your own elder planning, particularly if you may need Medicaid to pay for long-term care within five years of making a gift. By creating a properly structured SNT, you give your child or grandchild a gift that can serve them well throughout their lives.

The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation, and what is permitted by federal and your state law. You should consult with an attorney before creating or contributing assets to a trust, and before making distribution from a special needs trust. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship.

(C) Gemma Law Office, P.C. 2011. Please visit us at: _a target="_blank" href="http://www.gemmalawoffice.com]www.gemmalawoffice.com[/url].

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