Special needs trusts – Part 5: What goes in and how it can be spent
Now that Parts 1-4 have covered most of the issues involved in creating a special needs trust (SNT), it’s time to talk about putting assets into the trust and how the money can be spent. This is in fact the whole point of having a trust, right?
If you’re having an attorney prepare your trust, s/he will need to know about your financial assets, especially if you’re also creating or updating wills or living trusts along with the SNT. It will help to provide at least a summary list of your major assets and accounts with a ballpark figure on their value. (Some attorneys ask for account ID numbers too; ours didn’t.) From this, the attorney might suggest which of your assets could be designated for the SNT.
As discussed in Part 3, anybody except the beneficiary can fund a third-party trust (the most common type of SNT). Parents, relatives, and others can contribute cash, investment funds, real estate, or other assets. The SNT can be the beneficiary of life insurance policies and the like. The trust can also inherit all or part of the estate of the parents or anybody else.
One attorney said the ideal is for special needs trust to contain $80,000 to $150,000 once both parents have passed away. This large sum will be used for a lifetime of expenses other than food or shelter (more about that later).
Our family doesn’t have that kind of money sitting around right now, but we have arranged for Nathan’s SNT to inherit half of our estate (the other half going to his brother). In the meantime, we are chunking a little money here and there into the SNT account. The idea is to give the trustee at least some funds she can work with right away after our death, knowing that it may take some time for the inheritance to wend its way through the legal processes and into the SNT.
Not long after the SNT documents are signed, you should set up an account that will hold the funds in the trust. When you’re ready to do this, bring the trust documents to your financial institution and be prepared to sit with someone at a desk for awhile. You’ll have to deposit at least a nominal sum into the account at that time.
Now, on to the particulars of how funds can be withdrawn from the trust and what they can be used for. Here are two important points:
- To keep the SSI benefits flowing, the special needs trust funds shouldn’t be used for food or shelter – that’s what the SSI funds are supposed to cover. If some trust fund money does go toward a landlord, utilities like electricity/gas/water, groceries, or a restaurant, Social Security can reduce SSI benefits by up to one-third.
- The trustee won’t be able to withdraw cash for the beneficiary to spend, because that is counted as “income” by the good folks at SSA. No; the trustee will have to withdraw the funds and purchase the goods or services, which are then provided to the beneficiary. (And you can’t give the beneficiary gift cards, either!)
What if you want to purchase a permanent home for your son or daughter: can the trust be used to do that? The answer is, it’s complicated. You or the trustee should definitely consult with an attorney before going too far with that idea. This link sheds a little more light on the considerations involved.
Pretty much anything other than food or shelter is fair game for SNT expenditures: a car or other means of transportation, clothing, medical expenses not covered by Medicaid, amusement items, training or education expenses, electronics, etc. I think I read somewhere that in the trust document you may forbid expenditures on certain specified things, such as alcohol or cigarettes.
Speaking of decisions regarding the funds in the SNT, when devising the trust you’ll need to specify what will happen to the funds if the beneficiary dies before the trust funds are used up. If you’re still alive, the funds could get absorbed back into your estate. But if you’re gone too, do you want the money to go to your surviving offspring? To grandchildren? To the trustee? To charity?
As you have seen, setting up a special needs trust is a big deal, but help is available at each step in the process. Remember that the trust can, and probably should, be updated over time. This article gives a very helpful breakdown of which aspects to review. You should review the trust annually, and whenever there’s a change in circumstances that impact the key players or the funding.
Believe it or not, I think these five special needs trust posts have now covered the basics. But don’t be too sad about the end of the SNT series! The topic may come back if I find another important angle to share (oh joy, oh rapture). And once the ABLE accounts are up and running, we just may have to look at how those will interact with special needs trusts.
In the meantime, best of luck as you pursue setting up a special needs trust for your son or daughter. It’s a hassle, but what better legacy could you leave than providing for your special needs family member for years to come?
About janet565I've lived in the Inland Empire of Southern California since 1982. Born and raised in New Jersey, I've also lived in upstate New York and in Oregon. My profession involves maps and geography, which is usually very interesting. My hobbies are pretty boring - none of them involve tigers (or ligers) or jumping out of aircraft - so they do not bear mention here. I hope you find the blog useful, and wish you well....
The purpose of this blog
Climbing The Cinder Cone presents resources that may help young people who learn or think differently. The focus is on situations that "fall through the cracks," where it isn't clear what programs or treatments are appropriate.
The blog mostly addresses topics our family has dealt with (or should have known about). Anyone with experience in these areas is invited to chime in!
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