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What Is a Special Needs Trust?

January 1, 2021
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A special needs trust holds money for a beneficiary that’s either a minor and/or that has a disability or chronic illness.

What expenses can a special needs trust cover?

A special needs trust can be used to purchase anything that can improve the quality of life for a special needs beneficiary, provided it doesn’t either interfere with or replace any public assistance. Examples of expenses covered by special needs trusts include:

• Medical and dental care

• Annual independent checkups

• Clothing • Medical equipment

• Training programs

• Education

• Treatments and rehabilitation

• Private resident care

• Transportation

• Maintenance

• Insurance

• Essential dietary needs

• Computer equipment

• Movies

• Trips

• Gifts for loved ones

Who can benefit from a special needs trust?

Individuals who are most likely to benefit from a special needs trust include:

  • Those with a severe and chronic disability
  • Those with a disability that is expected to require long-term, specialized services
  • Those who are receiving government benefits for their disability

What is the difference between a special needs trust and a testamentary trust?

Most people use a testamentary trust to provide for their children’s health, education and support following their death. The assets remain in the trust until the donor’s children reach a certain age, at which time assets are distributed to each child. A testamentary trust is not suitable for a special needs beneficiary because distributions from the trust would supplant the benefits provided by the government, therefore making the special needs child ineligible to receive these benefits. If a child is not disabled enough to qualify for government benefits, a testamentary trust may be a more appropriate way to provide for the child.

How do I choose a trustee for the special needs trust?

The trustee should be someone who is familiar with the situation of your special needs beneficiary. Family members and close friends are often motivated to invest the time necessary to properly manage the trust for the special needs individual. You have the option to pay the trustee a salary for his or her time and efforts. Some donors choose a bank, trust company or other professional to manage the special needs trust. These professionals may be better equipped to help navigate the benefits available to the beneficiary. Professional trustees are typically paid a percentage of the trust’s assets each year.

What happens to the special needs trust following the death of the beneficiary?

You may designate any individual or organization to receive the remaining proceeds of the special needs trust once the beneficiary is deceased. The special needs trust will then terminate. If you have any additional questions about setting up a special needs trust, schedule a complimentary, no-obligation consultation and learn more about how Creative Planning can help you.

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.


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