Estate Planning for Persons with a Disability

A Special Needs Trust  (SNT) is used to hold and manage financial resources for the benefit of a person with a disability. The purpose of an SNT is to improve the quality of life for the person without affecting their eligibility for government assistance. An SNT is typically funded with assets from a deceased person's estate. Those assets are then managed by a trustee for the benefit of the person with a disability for their entire lifetime. 

The most common form of Special Needs Trust consists of the following elements:

1. A pure "discretionary" trust; 
2. A source of property to be added to the trust by any third party;
3. A single disabled person as the sole lifetime trust beneficiary;
4. A trustee to manage the trust property for the beneficiary; and,
5. One or more alternate beneficiaries to receive the trust property upon the death of the beneficiary.

A Special Needs Trust (SNT) is designed to provide lifetime financial assistance to a disabled beneficiary while preserving his or her eligibility for government assistance. An SNT works because the beneficiary does not actually own the trust assets, and they have no right to force the trustee to make a distribution of trust property. Rather, the trustee has authority to distribute the trust assets to the beneficiary as the trustee sees fit.  As a result, the trust assets are not attributable to the beneficiary for purposes of his or her eligibility for government assistance.

Adding property to a trust is called "funding" the trust.  A third-party SNT can be funded with any assets that are not owned by the beneficiary. This is typically done with life insurance owned by a parent or guardian, or a direct distribution of cash from the will or trust of a parent, grandparent, or guardian of the beneficiary. In this way, upon the death of the parent or guardian, the trust will receive the necessary resources to provide supplemental care and support for the beneficiary.

The proceeds of a Special Needs Trust are intended to supplement, not replace, the basic support provided by government benefits such as Supplemental Security Income (SSI) and Medicaid.

The general rule is that SNT funds may be used to pay for goods and services which benefit the disabled person, except any such goods and services which are directly covered by government assistance (e.g. health care, rent, and housing expenses). The Trustee should make payments directly to the provider of the goods or services, not directly to the beneficiary, in order to maintain benefit eligibility.