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Families caring for individuals with special needs face unique challenges when planning for the future. Beyond the immediate concerns of day-to-day care, long-term financial planning is crucial to ensure that their loved ones continue to receive support, even after the family is no longer able to provide it. A major challenge is balancing financial stability with the eligibility requirements for government assistance programs like Medicaid and Supplemental Security Income (SSI), which are often vital to the individual’s care.

This is where a Special Needs Trust (SNT) becomes an invaluable tool. A Special Needs Trust is specifically designed to protect assets for a loved one with disabilities, allowing them to receive financial support without jeopardizing their eligibility for essential government benefits. By using an SNT, families can set aside funds to enhance their loved one’s quality of life—covering everything from medical care to educational opportunities—while ensuring they remain eligible for state and federal programs that help meet their basic needs.

What is a Special Needs Trust?

A Special Needs Trust (SNT) is a legal tool designed to ensure that individuals with disabilities can have their future needs met without jeopardizing their eligibility for critical government assistance programs like Medicaid and Supplemental Security Income (SSI). These programs often have strict financial requirements, meaning that if a person with disabilities were to receive a large inheritance or other financial support directly, it could disqualify them from the benefits they rely on for healthcare and basic living expenses.

An SNT allows families to set aside assets for their loved ones while preserving their access to these government programs. The funds in a Special Needs Trust can be used to pay for a variety of expenses that enhance the individual’s quality of life, such as medical care, education, therapy, personal care, and other supplemental needs. Importantly, these funds are managed by a trustee, ensuring they are used responsibly and in a way that does not interfere with the individual's eligibility for government assistance.

Types of Special Needs Trusts

There are two primary types of Special Needs Trusts, each serving different financial and legal circumstances:

• First-Party Special Needs Trusts: These trusts are funded using the assets that belong to the individual with special needs. For example, if the individual receives a personal injury settlement, an inheritance, or another form of financial windfall, those assets can be placed in a First-Party Special Needs Trust. The key feature of a First-Party SNT is that it must include a "payback" provision, meaning that after the beneficiary’s death, any remaining funds in the trust must be used to reimburse Medicaid for services provided during their lifetime.
• Third-Party Special Needs Trusts: These are funded by someone other than the individual with disabilities, such as parents, grandparents, or other relatives. Assets placed into a Third-Party Special Needs Trust do not come from the beneficiary, so there is no "payback" requirement. After the beneficiary passes away, any remaining assets in the trust can be distributed to other family members or individuals as specified by the trust’s creator. This type of trust is often used by families to provide for their loved ones while preserving their inheritance for future generations.

Why a Special Needs Trust is Important

Preserving Government Benefits

One of the primary reasons to establish a Special Needs Trust is to ensure that your loved one can continue to receive financial support without losing access to key government programs such as Medicaid and SSI. Both programs have strict eligibility requirements that place limits on the income and assets an individual can hold. If a person with disabilities were to receive a direct inheritance, for example, it could push them over the financial threshold and cause them to lose these crucial benefits.

A Special Needs Trust circumvents this problem by holding the assets in a trust, where they can be used for the individual's benefit without counting toward their income or asset limits. The funds in an SNT can be used to pay for expenses not covered by government programs, such as specialized therapies, education, and recreational activities, all while ensuring continued access to Medicaid and SSI, which often cover critical healthcare and living expenses.

Providing Long-Term Financial Security

An SNT not only helps meet your loved one’s immediate needs but also provides for their long-term financial security. One of the greatest concerns for parents and caregivers is what will happen to their child or family member when they are no longer around to provide care. A Special Needs Trust ensures that your loved one will continue to receive support after you’re gone.

The trust can be funded with various assets, such as life insurance policies, savings, or property, and managed by a trustee who ensures the funds are used appropriately for your loved one's benefit. With an SNT in place, you can rest easy knowing that your loved one will have the financial resources to maintain their quality of life even if you are no longer able to provide direct support.

Protection Against Mismanagement

Another important advantage of a Special Needs Trust is its ability to protect assets from being mismanaged. When you set up an SNT, you appoint a trustee who will be responsible for managing and distributing the funds. This provides an additional layer of protection, ensuring that the assets are used in the best interest of your loved one and not squandered or misused.

The trustee has a fiduciary responsibility to act in the beneficiary’s best interest, ensuring that the funds are used for appropriate purposes, such as healthcare, educational programs, and personal care needs. This can be especially helpful if your loved one is unable to manage finances independently, or if there are concerns about family members who may not use the funds responsibly. By appointing a trusted individual or professional fiduciary, you can ensure that the financial resources are well-managed and preserved for the long-term benefit of your loved one.

How a Special Needs Trust Works

Role of the Trustee

The trustee is the person or entity appointed to manage the trust. Their primary responsibilities include managing the trust’s assets, making distributions to the beneficiary, and ensuring that all activities related to the trust comply with government rules. A trustee can be a family member, a friend, or a professional fiduciary, but they must have a clear understanding of the laws surrounding Special Needs Trusts to prevent the beneficiary from losing access to government benefits.

The trustee’s role is to act in the best interest of the beneficiary. They are responsible for:

• Managing the assets in the trust, ensuring they are invested wisely and preserved for future use.
• Making appropriate distributions from the trust to cover the beneficiary's needs without affecting their eligibility for Medicaid or SSI.
• Maintaining detailed records of all transactions and expenditures to show that the funds are being used for the intended purposes.

Since the trustee’s decisions can directly impact the beneficiary's quality of life, it’s essential to choose a trustee who is both trustworthy and knowledgeable. In some cases, families opt to appoint a professional fiduciary who has experience in managing Special Needs Trusts to ensure the trust is administered correctly.

Types of Expenses Covered

A Special Needs Trust can be used to pay for a wide range of expenses that improve the beneficiary’s lifestyle but are not covered by government programs like Medicaid and SSI. The key is that these funds should be used to supplement government benefits, not replace them.

Examples of expenses that a Special Needs Trust can cover include:

• Medical care not covered by Medicaid, such as specialized treatments or alternative therapies.
• Educational costs, including tuition, tutoring, and special education programs.
• Recreational activities such as travel, hobbies, and entertainment that improve the beneficiary's quality of life.
• Personal care services, such as caregivers or aides.
• Assistive technology, like wheelchairs, communication devices, or other equipment to aid daily living.
• Home modifications, such as wheelchair ramps or accessible bathrooms to ensure safe and comfortable living conditions.

Trust Administration

Proper trust administration is critical to ensuring that a Special Needs Trust serves its intended purpose without causing any unintended consequences, such as disqualification from government benefits. The trustee must be vigilant in adhering to the rules governing SNTs, especially when it comes to making distributions.

If the trustee improperly uses trust funds to cover expenses that should be paid for by government benefits—such as rent or basic living expenses—the beneficiary could lose their eligibility for Medicaid or SSI. This makes the role of the trustee even more important, as they must fully understand the regulations and know which expenses the trust can and cannot cover.

In addition to managing funds and making distributions, the trustee must also maintain accurate records of all transactions and expenditures. This ensures transparency and allows the trust to demonstrate compliance if it is ever reviewed by government agencies. Failure to properly administer the trust can result in legal issues or the loss of government benefits.

For these reasons, families often choose to work with a professional trustee or fiduciary who is experienced in administering Special Needs Trusts. This ensures that the trust is managed according to legal guidelines and that the beneficiary’s future is fully protected.

Protecting Your Loved One’s Future with a Special Needs Trust

At Keller, Barrett & Higgins, we specialize in helping families create comprehensive estate plans that include Special Needs Trusts. Our experienced attorneys are here to guide you through every step of the process, ensuring your loved one's future is secure. Contact us today to schedule a consultation and discuss how we can help protect your family’s interests.

• Phone: (513) 351-6058
• Email: info@kbhlawyers.com
• Address: 6900 Miami Avenue, Madeira, Ohio 45243
• Website: www.kbhlawyers.com