What is a supplemental needs trust, and do I need one? Also referred to as a 3rd Party SNT, these legal arrangements are created by a parent, family member or caregiver (also known as the grantor) of a child with special needs requiring lifetime care. The purpose is to provide funding that will supplement, not supplant governmental benefits. It is important to note that these do not have a payback provision as mentioned last week with 1st party trusts.
The grantor will generally serve as trustee until they are no longer able at which point a successor trustee will assume this responsibility. Whoever is acting as trustee is legally obligated to follow the terms of the trust and use any property solely for the beneficiary with special needs. They need to know how to use the funds without disqualifying the child from government benefits which requires a thorough understanding of law and eligibility. Accurate records must be kept along with paying taxes or liquidating property to raise cash which could be used to keep up with the child’s financial needs throughout their life.
Once created, signed and notarized, the trust will take effect. Many times, the trusts will only be funded at the death of a family member leaving assets or insurance proceeds to the trust. It could be funded by opening a bank account along with a small deposit, but this may not make much sense as an annual tax return would then be required, and the cost could be more substantial than the balance in the account.
When working with a family of a child with special needs, we will review their current estate plan and beneficiary designations to ensure that nothing will be left directly to their child. This is important for both probate and non-probate assets. It is also important to notify any loved ones wishing to leave a gift or inheritance of your implementation of a supplemental needs trust, so they do not inadvertently leave a generous gift, only to disqualify the child from eligibility for benefits.
On deck we have government benefits so stay tuned for next week. This article does not cover the specifics of these trusts in absolute detail. With questions or for more information on estate planning, 1st Party SNTs or Supplemental needs trusts, feel free to contact me at Kevin@ewmginc.com.