When creating or updating an estate plan, it’s important to consider the unique needs of your beneficiaries. For example, if you have a loved one with a disability or special needs, incorporating a supplemental needs trust (SNT) into your estate plan may be one of the most effective ways to provide them with long-term support.
This type of trust – sometimes referred to as a special needs trust – can allow you to set aside assets for a person with special needs without jeopardizing their eligibility for means-tested government benefits like Supplemental Security Income (SSI) or Medicaid.
Making a focused effort
A supplemental needs trust is a specialized resource designed to enhance the quality of life for a beneficiary with a disability. Unlike a standard trust or outright inheritance, an SNT is structured to provide for needs that public assistance programs do not cover, such as specialized therapy, travel, personal items, educational support and recreational activities. The assets in an SNT are not considered countable resources for government benefit purposes as long as the trust is properly drafted and managed.
One of the main advantages of using a supplemental needs trust is the ability to preserve public benefits. Many government programs have strict income and asset limits. Even a modest inheritance could disqualify someone from receiving vital assistance. An SNT avoids this outcome by holding the assets in a separate legal entity, with a trustee managing the funds on behalf of the beneficiary.
There are several types of supplemental needs trusts, including third-party and first-party trusts. A third-party SNT is funded by someone other than the beneficiary—such as a parent, grandparent, or sibling—and is commonly used in estate planning. A first-party SNT, on the other hand, is funded with the beneficiary’s own assets, often as a result of a personal injury settlement or inheritance. Each type has specific rules and requirements, and choosing the right one is a process that should be influenced by the circumstances of the potential beneficiary and the source of funds utilized to render a trust functional.
Incorporating a supplemental needs trust into your estate plan can help you to better ensure that your loved one with special needs will be cared for in the future, even after you are no longer able to provide them with the necessary support.