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Special needs trust: frequently asked questions

What is a ? income and the value of their other To provide additional If you have a child or other loved assets fall below certain limits, care and services which vary from state to state. Most one with special needs, you may A special needs trust can be states set a $2,000 asset limit. want to establish a special needs especially useful if you want to trust. A special needs trust is an In determining eligibility for provide care and services necessary planning tool that can help Medicaid, a state may count only the for your child’s well-being, without you provide for the needs of an income and assets that are legally supplanting Medicaid benefi ts. individual who is disabled without available to the applicant. A special Although Medicaid pays for a jeopardizing his or her eligibility for needs trust restricts the benefi ciary’s number of medical costs, including government benefi ts. A qualifi ed own direct access to the assets in hospital bills, physician services and attorney can help you establish the trust to such an extent that the long-term care, it will not subsidize and administer this type of trust. assets are not considered legally items and services considered available to the benefi ciary. Thus, nonessential. These may include Why establish a special a special needs trust can protect health-related expenses such as needs trust? Medicaid eligibility because assets eyeglasses, dental care, rehabilitation in the trust are uncountable. services and home health aide Unlike other types of trusts often used services, as well as personal in , the primary goal To preserve eligibility for expenses such as transportation, of a special needs trust is to provide Supplemental Security Income (SSI) computer equipment and vacations. for the needs of an individual who is Children and adults with special disabled throughout his or her life. To help confi rm that trust assets needs who have limited income and are not considered legally available Federal and state benefi ts are resources often receive monthly to the benefi ciary, the generally available to qualifying benefi ts from Supplemental Security must have sole discretion over the children and adults who have special Income (SSI). These cash benefi ts distribution of trust income and needs. If your child qualifi es for can be used for basic needs such as principal. The benefi ciary must have government benefi ts, one of your housing and food. But because SSI no control over the trust and no right goals may be to help make sure benefi ts are need-based, inheriting to demand distributions from the that his or her eligibility continues money can mean that a child trust. The trustee should purchase into the future. A special needs with special needs will lose their goods and services directly on the trust can help you attain this goal. eligibility for this benefi t program. benefi ciary’s behalf, instead of giving In addition, this type of trust can By naming a special needs trust as the benefi ciary money from the provide for supplementary care your benefi ciary instead of your trust to purchase items needed. and services for your loved one. child, however, assets can be devoted to the care of your loved one. In To preserve eligibility for Medicaid addition, since SSI recipients are What requirements must a Medicaid, a joint federal-state normally automatically eligible for special needs trust meet? program, provides medical assistance Medicaid benefi ts, preserving your If the trust is intended to supplement, to those who are disabled and child’s eligibility for SSI may preserve rather than replace, government can demonstrate fi nancial need. their eligibility for Medicaid as well. benefi ts, it must be properly Children and adults can qualify drafted. Although requirements vary for Medicaid only if their monthly according to state law and the type of

Investment and products offered through RBC Wealth Management are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affi liate, and are subject to investment risks, including possible loss of the principal amount invested. Page 2 of 2 Special needs trust: frequently asked questions, continued

special needs trust being established, How is a special needs trust describe how you want your child here are some of the rules that apply typically funded? to be cared for after you’re gone. to special needs trusts in general: In many cases, a special needs trust Although it’s not a legal document, it can provide important information to • Generally, only a parent, is established, but not funded, while guardians, , family members grandparent, legal guardian or the parent or other creator is alive. and others involved in the care of court can set up a special needs Upon the parent’s death, their will your child. The letter may address trust. The person with disabilities, transfers the child’s portion of an such issues as your child’s medical no matter how competent, to the special needs trust. needs, daily routine, interests, likes cannot be the “creator” of the The trust (instead of the child) can and dislikes, religious practices, trust (even if the trust is funded also be designated as the living arrangements, social activities, by their personal assets). of various assets, such as employee benefits and life insurance policies. behavior management and degree • Funds in the special needs of self-sufficiency. Such a letter trust may not be available Typically, a special needs can prove invaluable to your child’s to the beneficiary. trust is funded using: caregivers and can also make the transition to a new living situation as • The beneficiary cannot • Life insurance smooth as possible for your child. revoke the trust. • Cash (including gifts from relatives) Informing family members • The individual with special needs • Investments (e.g., stocks, bonds) must be considered “permanently Explain to siblings or other family and totally disabled” under • Retirement plan benefits (e.g., members why you’re setting up SSI criteria. Different rules pension benefits, IRA funds, the special needs trust. Although apply to adults and children. 401[k] assets) siblings might expect to receive equal , more resources • Under the terms of the trust, the • Personal and will probably need to be set aside trustee may not be permitted to • Proceeds from a personal for the benefit of your child with make payments or distributions injury settlement (applies special needs. Explanations and that might interfere with to self-settled trusts) clear directions now may help government benefit eligibility. avoid family conflicts later. Distributions cannot be made directly to the beneficiary. What else should you consider Working with a qualified for a special needs trust? attorney and financial advisor • Special needs trusts may be Selecting a trustee established as part of a will or Special needs planning is complex during the creator’s lifetime. A trustee is a person or institution and technical, and the laws that selected to administer a trust and govern special needs trusts differ • Special needs trusts can hold an manage its assets. The trustee’s from state to state. To properly plan unlimited amount of funds and role is to adhere to the terms of for your child’s future, work with a funds can be added at any time. the trust document and fulfill its qualified attorney and a financial objectives. You may wish to name advisor who has experience with What types of special needs yourself or another family member the planning needs of families of trusts are available? as trustee of the special needs individuals with disabilities. This Although there are many types of trust, or you may wish to name a person should also have a thorough special needs trusts, they fall into two professional trustee. Another option understanding of the income, gift and general categories: the third-party is to name a family member and a estate consequences that must special needs trust, which is funded professional trustee as co-trustees. be considered when funding and with assets belonging to someone Providing a letter of intent administering a special needs trust. other than the beneficiary; and the self-settled trust, which is funded with If you set up a special needs trust assets belonging to the beneficiary. through your will, you might also want to draft a letter of intent to

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