If you're the parent of a child with special needs, you will want to seriously consider forming a supplemental needs trust, which is interchangeably referred to as a special needs trust. The primary purpose of a supplemental needs trust is to maintain eligibility for public benefits such as Medicaid and Social Security.
Because your child does not have authority to spend the funds in the trust, it's not considered a countable asset when determining Medicaid and Social Security eligibility. This allows your child to remain on federal assistance programs while still being supported financially, even after you pass away. Supplemental needs trusts can provide for medical treatment, housing, education, and transportation expenses, among other things.
One of the most important decisions you'll have to make when forming a supplemental needs trust is choosing a trustee. The trustee is the one who has authority to spend the funds in the trust, and they need to adhere to strict accounting requirements and ensure that all of the funds are spent for the benefit of your child.
No matter who you decide to select as the trustee of your supplemental needs trust, it's important to hire the services of an estate attorney in order to create the trust. The language of a supplemental needs trust needs to be exacting. If you form a trust on your own, you may encounter difficulty later on—Medicaid can often access the funds in a trust that is written incorrectly. Not all estate attorneys have experience with special needs trusts, so make sure that you choose one who works in this field.
To help you make the decision about your trustee, here are some types of trustees that are commonly used for supplemental needs trusts along with their advantages and disadvantages.
Naming a family member that's close to your child as the trustee of a supplemental needs trust has a number of advantages. For one, you'll avoid incurring trust management fees that financial institutions or professional trustees impose. Additionally, family members typically have a better understanding of your child's needs compared to an institution, where no such personal relationship exists.
Unfortunately, there are some significant downsides as well. The first is time—becoming the trustee of a special needs trust essentially requires you to become a part-time accountant. Meticulous records of how trust funds are spent need to be kept, and the trustee will need to file tax returns on behalf of your child. Failing to do so can lead to legal consequences or penalties levied on your trust.
In addition, a family member may not have the requisite knowledge of how public benefits operate or how the funds in a supplemental needs trust can be used without penalty. Navigating the Medicaid and Social Security system is often difficult—your trustee either needs to have intricate knowledge of public benefit programs or needs to know when to ask for help from an attorney or benefit counselor.
Non-Profit Organization in a Pooled Trust
You may also wish to consider a pooled supplemental needs trust. They can only be managed by non-profit organizations. A pooled trust combines funds from multiple families together into a larger account, which is then invested. This reduces their overhead costs compared to the value of the combined trust, similarly to how large mutual funds operate.
The non-profit organizations who run pooled trusts specialize in managing trusts for individuals with special needs. This means that they know the regulations regarding how the funds in a supplemental needs trust can be spent, and they're also familiar with the level of care that people with special needs require. Because of their low management costs and familiarity with the regulations regarding special needs trusts, selecting a non-profit as your trustee is a great option as well.
Professional Special Needs Trustee
Because of the time commitments and knowledge requirements imposed on the trustee, hiring a professional to manage your supplemental needs trust is often a good choice. Companies like Life's Plan Inc work with supplemental needs trusts and provide life planning services for people with disabilities and their families. Professional trustees know how to meet accounting requirements and know how the funds in a trust can be spent without incurring a penalty.
Because a professional trustee won't already have a personal relationship with your child, it's a good idea to name a family member as a co-trustee of your special needs trust along with the professional trustee. Your family member can communicate your child's needs to the administrator while the administrator handles all the finer details of accounting.