Special needs trusts can help families meet financial needs

Parents and families with children or other loved ones with special needs face daunting tasks on a daily basis, and the family's life generally revolves around the needs of the disabled child or family member. One of the best ways to deal with the financial needs of the disabled or handicapped person is through a special needs trust.

Although there are three distinct types of special needs trusts, the most common are those funded by the family or anyone other than the disabled person who typically receives government benefits or other assistance. These types of trusts are known as third-party trusts. Bear in mind that these trusts do not have to be only for children, but children are the usual beneficiaries.

The most common event that triggers the need for one of these trusts for an individual receiving government assistance is the potential receipt of additional monies in the form of an inheritance, a life insurance death benefit or a personal injury award. Often, these trusts serve as repositories for intrafamily lifetime gifts. Virtually any expenses not met by public or private agencies can be provided by these trusts.

These special needs trusts are permitted by the Social Security Administration, and they have provided guidelines that allow a trust beneficiary to receive trust benefits while receiving, at the same time, benefits from Social Security or other public benefits. The beneficiary must not be able to revoke the trust nor can he control the trust distributions while the trust is operative.

Usually the trust is established by a family member or members. The trust can receive cash or other gifts from persons who are not the grantor (establisher of the trust). One common method of funding these trusts is through the proceeds of life insurance policies on the lives of family members.

Usually it makes sense to name an institution as the trustee or co-trustee of the trust to ensure that the trust maintains continuity after the deaths of other family members. A letter of intent is usually prepared by the family to serve as an instruction manual for all persons who will provide either financial or personal care to the special needs person.

These trusts can be very technical in nature because there are stringent requirements that must be met to insure that the special needs trust will qualify as such. Any advisers that are selected must be very knowledgeable in these matters, and not every estate planning adviser is well-versed enough to provide proper direction. Certainly there is a cost to establishing a special needs trust, but one that accomplishes the family's goals is a financial bargain.

The trust may accept other gifts than those contributed when the trust is formed. Remember that gifts made during the lifetime of the donor may be subject to gift taxes.

This brief description does not cover all of the considerations that must enter into a decision to establish a special needs trust. An experienced attorney is your best resource to investigate this type of financial instrument in more depth.

Got a financial planning question for Greg? You may e-mail him at greg29803@gmail.com.

Greg Roberts is a certified financial planner with 35 years of financial and estate planning experience.