Special Needs Trust

Comprehensive estate planning should include a discussion about any persons who will receive property and who might have some type of legal, physical, or mental disability.

The most common situation arises when a recipient of the estate is a minor. In this case, the minor has a legal disability because he or she will need an adult to be responsible for his or her assets. A young adult who is over the age of eighteen, but still too young or unsophisticated to manage a substantial asset, may also benefit from having a more responsible person manage the asset. For example, most parents do not want a 22-year-old child to receive the parents’ estate. To avoid this situation, the parents can put the assets into a trust. The trustee will then hold the assets for the benefit of the 22-year-old until he or she reaches a certain age, which is specified by the parents.

A less common situation arises when an adult with a physical or mental disability is receiving, or may in future qualify to receive, means-tested benefits from a governmental agency, such as Social Security or Washington’s Department of Social and Health Services. In this case, receipt of assets may disqualify the recipient from such state or federal programs.  Even if the recipient received only the income from the assets, such income might disqualify the recipient or cause the governmental benefit to be reduced.

A special needs trust should be considered when planning for someone who is receiving, or may in future be eligible for, means-tested disability benefits.  A special needs trust specifies a trustee who will hold assets for the benefit of the disabled person. The trust has limitations on how the funds can be spent for the disabled person. In general, the funds cannot be given directly to the disabled person, or spent on essentials which are already being supplied by the governmental agency.  Instead, the funds are paid directly to a third party for the extra and supplemental needs of the disabled person. Such extraordinary benefits not covered by government programs include recreational travel, computer equipment, hobby materials, transportation, or other benefits intended to make the beneficiary’s life as comfortable and happy as possible.  The trustee can learn the details of how to help the beneficiary with extra or supplemental needs without jeopardizing eligibility for government programs.

This information is general in nature and should not be relied upon for your specific circumstances. For information, questions, or comments, please contact Douglas J. Engel or Kathryn S. Kumar.