Why would you need a Special Needs Trust?
If you have a beneficiary who has special needs and is on government assistance, you might want to create a Trust for the benefit of this beneficiary without disqualifying them from government assistance. If there are assets in the name of the beneficiary, there are other types of Trusts which could be created to avoid disqualification, but those trusts typically will send any remaining proceeds upon the death of the special needs beneficiary to the state (also known as a first-party trust).
This type of Trust is also known as a Supplemental Needs Trust as it supplements the needs of the beneficiary and pays for things the government does not cover.
Is it irrevocable or revocable?
A Special Needs Trust can be either revocable or irrevocable. If you create a Trust to benefit a beneficiary with special needs immediately, you would create an irrevocable trust. This would typically be used for one or more people to contribute to the individual beneficiary’s care.
If, after your death, you want a beneficiary who has special needs to benefit from your assets, you would likely create a revocable trust. This allows you to keep control over assets during your life but fund a Trust for the benefit of the special needs beneficiary upon death. Using this method will allow you also to control where assets go upon death (not to the state).
Is a separate tax identification required?
The Special Needs Trust does not require a separate Tax Identification Number; the creator (also known as Settlor or Grantor) would use their social security number as the identification number. Upon death, a social security number can no longer be used.
Can you be your own Trustee?
During life, you can be the Trustee of your Special Needs Trust created for the benefit of another person (also known as a third-party trust). The terms of a Special Needs Trust will need to prohibit the beneficiary of such a Trust from serving as the trustee.
Is a gift tax return required?
Unless you are creating an irrevocable Special Needs Trust, no gift tax return is required (because there is no gift). A gift tax return would be required if you create an irrevocable Special Needs Trust, and the contribution exceeds the annual exclusion amount.
Is this subject to estate tax upon my death?
Yes, if the Special Needs Trust was created within your Revocable Trust. If you created and gave up control over an Irrevocable Special Needs Trust, then the Trust would be outside your taxable estate.
Is there creditor protection?
There is no creditor protection if the Special Needs Trust is within your Revocable Trust. If the Special Needs Trust is an Irrevocable Trust, the assets are protected from creditors.
What assets can be placed in this type of Trust?
Any assets can be placed in or directed to the Special Needs Trust.
How does it work?
The terms of the Special Needs Trust are narrowly tailored to avoid the assets being accessible by the beneficiary’s creditors and to avoid disqualifying the beneficiary from government assistance.
Contact a Trust Attorney today to schedule a consultation and learn more about how we can help you with your estate planning needs.