5 Steps to Starting a Special Needs Trust

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If have a child with special needs, you've probably gotten the message that you have to put money in a Special Needs Trust. These trusts protect your adult child from losing services due to maximum income requirements. And maybe you're dragging your feet on that, reluctant to take on another complicated chore.

To take some of the trepidation out of the task, Joanne Marcus, executive director of Commonwealth Community Trust (CCT), walks us through the choices we'll need to make in getting a trust set up.

CCT is a nonprofit organization established in 1990 by concerned citizens and parents of children with disabilities. They provide an effective and affordable administration of either a Special Needs Trust or Pooled Disability Trust and act as the trustee in managing the disbursements.

Marcus recommends these first five steps:

Understand the Need for a Trust

"A Special Needs Trust allows the parent or caregiver to set aside money for the future care of their loved one living with a disability while protecting the U.S. government benefits (Supplemental Security Income and Medicaid) that are crucial in providing the medical and income necessary to supporting the individual," explains Marcus.

"In order to qualify for these benefits, the individual can have no more than $2,000 in cash assets. A monetary gift, settlement, or inheritance will cancel these benefits, leaving the individual with both the need to manage the money themselves and, most likely, not have enough money to support their lifetime needs."

To Get Started

Consider what those lifetime needs may be by filling out a Special Needs Calculator.

Pick the Right Type of Trust

Your choice of trust will be determined by who's putting the money into it -- you or your child. Regardless of the type of trust you choose, you can use money in both of the following types of trust for things like "purchasing a wheelchair, dental services, eyeglasses, hearing aids, education, recreation and travel, transportation, and furniture and clothing," Marcus says.

Special Needs Trusts

Special Needs Trusts, Marcus notes, are "funded by a third party, usually a close family member like a parent or grandparent, and can be coordinated with the family’s estate plan. The trust holds money or property that the grantor leaves for the beneficiary’s benefit."

Pooled Disability Trusts

Pooled Disability Trusts, on the other hand, are "self-funded by the person with a disability, generally through a personal injury award or inheritance, and can be used for the same types of expenditures. The pooled trust program must be set up and managed by a nonprofit corporation and must be established in the same month the funds were received to protect benefits."

Unlike the Special Needs Trust, where the state does not need to be reimbursed if the beneficiary should pass away, the Pooled Disability Trust is required to pay back what it can to Medicaid. The grantor can designate an individual or organization to receive the remaining funds.

To Get Started

Read more about Special Needs Trusts and Pooled Disability Trusts on the Commonwealth Community Trust site.

Get Professional Help

"Estate planning attorneys, financial planners, and case managers can give their perspective on long-term financial needs that will best suit the 'what if' scenarios," Marcus advises. "Because the regulations are complex and constantly changing, it’s important to select an attorney or nonprofit that specializes in these types of trusts."

To Get Started

Marcus recommends contacting Commonwealth Community Trust (who can administer the trusts and serve as the trustee) and the Special Needs Alliance (who can connect you with an Estate Planning Attorney).

Choose a Trustee 

"Both trusts require that a trustee is designated," says Marcus. "The trustee manages and invests the funds for the trust and makes disbursements that are for the sole benefit of the beneficiary.

The trustee is also responsible for reporting to the government agencies providing the benefits and staying abreast of changing regulations."

Choose an Advocate

"Especially in the case of a Special Needs Trust, an advocate is designated by the grantor (individuals funding trust) and is generally someone close to the beneficiary who understands the grantor's wishes and the beneficiary’s needs," according to Marcus.

"The advocate works closely with the trustee in determining disbursements that will maintain the quality of life for the beneficiary. The grantor should complete a set of instructions (forms are available to assist in this) indicating how they want the beneficiary to be cared for, including the naming of the advocate."

To Get Started

Write a letter of intent to ensure that those making decisions for your child have the information they need.

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