Too often families have unrealistic expectations with regard to personal injury settlements that incorporate a special needs trust (SNT). In such cases, it’s advisable to involve a special needs attorney as early as possible so that all parties understand what is permitted by public benefits regulations.
A special needs trust (SNT) is a legal agreement through which someone places money or property into the hands of a trustee, who will hold and manage those assets for the benefit of a beneficiary with disabilities. SNTs primarily serve two purposes. If the beneficiary is unable to effectively handle assets on their own, an SNT enables the assets to be managed on their behalf by a trustee. In addition, if the SNT is properly drafted and administered, the assets that it holds will not affect the beneficiary’s eligibility for means-tested programs such as Medicaid and SSI (Supplemental Security Income).
The trustee controls the SNT and is responsible for all investment decisions and distributions, although he/she may seek advice about the beneficiary’s needs from the individual’s family or a professional care manager. The trustee’s role requires a thorough understanding of the rules governing public benefits in order to spend trust money in a manner that protects the beneficiary’s eligibility. This includes the requirement that funds are to be used for the sole benefit of the beneficiary, not other family members.
Since most SNTs must provide accountings to the state Medicaid agency or the court to ensure that distributions are in order, the trustee must maintain good records of all receipts and payments. Sometimes the trustee must get approval from the court or a review committee for disbursements above a certain dollar limit.
Trustees do not give funds directly to the beneficiary, since that would be considered income by Medicaid and SSI and could affect eligibility for those programs. And rather than making distributions to other family members, the trustee usually pays vendors directly on behalf of the beneficiary.
When families understand how an SNT must be administered in order to protect the beneficiary’s eligibility for important government benefits it can avoid both disappointment and conflict.