Special Needs Trusts

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Special Needs Trusts.

Special Needs Trusts (SNTs) are specialized legal arrangements designed to provide financial support for individuals with disabilities while preserving their eligibility for essential government benefits. These trusts are crucial for ensuring that individuals with special needs can maintain access to essential public assistance programs such as Medicaid and Supplemental Security Income (SSI), which have strict asset and income limits. 

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Special Needs Trusts:

These trusts hold and manage assets for the benefit of a person with disabilities, covering expenses not provided by public assistance programs.

Key Features of Special Needs Trusts

Purpose:

The primary purpose of an SNT is to supplement, not replace, the government benefits the beneficiary receives. These trusts can fund additional care, services, and items that fall outside the scope of public assistance programs.

Key Features of Special Needs Trusts

Types of Special Needs Trusts:

  • First-Party Special Needs Trust: Funded with the beneficiary's own assets, often from an inheritance or personal injury settlement. The trust must be established before the beneficiary turns 65. Additionally, the trust must include a Medicaid payback provision upon the beneficiary's death.
  • Third-Party Special Needs Trust: Funded by assets from someone other than the beneficiary, such as parents or other family members. It does not require a Medicaid payback provision. This means we get to control where the funds will go after the death of the beneficiary. 
  • Pooled Trust: Managed by nonprofit organizations, these trusts pool resources from multiple beneficiaries for investment purposes while maintaining separate accounts for each beneficiary.

Key Features of Special Needs Trusts

Trustee:

The most important role in any trust is the Trustee. The Trustee manages the trust assets and makes distributions for the beneficiary's needs. To ensure compliance with benefit eligibility requirements, the Trustee must be familiar with the rules governing SNTs.

Key Features of Special Needs Trusts

Distributions:

The trust can cover a wide range of expenses, including medical and dental care not covered by insurance, education, rehabilitation, personal care attendants, and recreational activities. Generally, an SNT can be used for a broader array of expenses when compared to an ABLE account.

Key Features of Special Needs Trusts

Legal Requirements:

SNTs must be carefully drafted to comply with federal and state laws to ensure that the beneficiary remains eligible for public benefits.

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Special Needs Trusts.

Special Needs Trusts are an essential tool in estate planning for families with disabled members, providing financial security and enhancing the beneficiary’s quality of life without jeopardizing their access to necessary government assistance.

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Differences between an SNT and ABLE account.

Special Needs Trusts (SNTs) and ABLE accounts are both financial tools designed to assist individuals with disabilities, but they have different features and uses.

Differences between an SNT and ABLE account

No contribution Limit:

SNTs do not have an annual contribution limit, allowing for larger sums of money to be placed in trust for the beneficiary’s benefit. In contrast, ABLE accounts have an annual contribution limit, which usually mirrors the annual gift tax exclusion ($19,000 for 2025).

Differences between an SNT and ABLE account

No Age Restrictions:

No Age Restrictions: Currently, ABLE are only available for individuals whose disability onset occurred before the age of 26. After December 31, 2025, the age of onset will be increased to 46. However, depending on the type of SNT, you can establish an SNT at any age.

Differences between an SNT and ABLE account

Broader use of Funds:

While both SNTs and ABLE accounts can cover a wide range of expenses, SNTs can be used for a broader array of non-qualified expenses without affecting the beneficiary's eligibility for government benefits. ABLE accounts are limited to qualified disability expenses, which include education, housing, transportation, and other specific categories. For instance, an SNT could be used to pay for vacations, travel, entertainment, hobbies, and personal services, such as, a personal trainer, massage therapy, or spa treatments.

Differences between an SNT and ABLE account

Asset Management:

SNTs can hold a variety of assets, including real estate and investments and are managed by a Trustee. ABLE accounts are typically limited to cash contributions and are managed by the account holder or their designated representative.

Differences between an SNT and ABLE account

Medicaid Payback:

ABLE accounts are required to have Medicaid payback provisions. However, Third-Party SNTs are not required to have Medicaid payback provisions.

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Special Needs Trusts.

If you need assistance in setting up a Special Needs Trust, do not hesitate to contact our office.