A Special Needs Trust (SNT) is one of the tools for special needs planning. It is essential for families with special needs children to have proper estate planning that insures that the children will have a secure future.
SNT is very unique type of trust in that the language is very different from other trust language. The language should address the relationship of the trust to the government received benefit, with emphasis that the trust is not going to replace the government benefit. It is crucial to get the language correct in a Special Needs Trust in cases where the parents provide all or most of the child’s life-support assets.
In order to maintain the child’s qualification for government benefits, the assets must not go to a regular trust or directly to the child because there is a limit to assets that qualify one for many government benefits such as supplemental Medicaid or SSI. Accordingly, a trust have the correct special language. If done correctly, the assets placed into the trust would not be recognized as assets belonging to the child with regards to qualification for governmental benefits.
Different Types of Special Needs Trusts
1. d4A
A d4A trust is specifically designed to hold your child’s money. Although your child may not have money now; there may be an event that
provides a financial award to your child. In that circumstance, the money should go into a d4A Self-Settled Trust because if it goes
directly to the child, that may disqualify the child from receiving a governmental benefit. It is important to understand the d4a pay-back
concept; in the event that the child dies, Medicare can recapture money paid to the child. Only place money that is essential to short-term care into this trust.
2. Third Party SNT
Another type of trust is a Third Party SNT (this is the predominant method). Third Party Trust means that the money held in the trust is not
the child’s money, it belongs to the parents’ or other relatives bank account, life insurance, investment account or any other assets you
want to liquidate to provide for your child’s needs. If the trust is written correctly; there is no pay-back provision in the trust (as
mentioned in the d4A). You will need to write a provision that directs what should be done with any money that remains at the end of your
child’s life.
3. Pooled Trusts
If a family doesn’t have a lot of money, a relative can be appointed as trustee. There are non-profit organizations called Pool Trust’s. Pool
Trust collects assets from a number of different families and combines them. Each beneficiary has a portion of combined the pool. Each disabled person establishes his own sub-account in a pooled trust. After the pool companies combine the assets together, they find an investment company who will take care of combined assets.
The pooled collection of funds make it possible to get the attention of investment company that will take proper care of managing the combined funds. Pool trust companies manage the investments and distribute profits to the beneficiary’s while maintaining the possibility for the beneficiary to qualify for his/her governmental benefit. Those companies provide complete accounting for the money earned and spent.
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