Setting up a special needs trust is an important step in securing the financial future of a loved one with disabilities. As families navigate the process of creating a trust, they are faced with several key decisions that will shape the trust's structure and provisions. In this article, we will explore the essential decisions involved in setting up a special needs trust, helping families make informed choices to best meet the unique needs of their loved ones.

1. Type of Trust

The first decision families must make when establishing a special needs trust is selecting the appropriate type of trust. There are three primary types to consider:

• Third-Party Special Needs Trust: This trust is created using assets owned by a family member or other third party to benefit the individual with disabilities. It allows the grantor to dictate specific instructions for the trust's assets and distribution.
• First-Party or Self-Settled Special Needs Trust: This type of trust is funded using the assets of the individual with disabilities, such as legal settlements, inheritances, or gifts. It includes a provision that any remaining funds at the beneficiary's death will reimburse the state for Medicaid benefits received.
• Pooled Special Needs Trust: Operated by nonprofit organizations, pooled special needs trusts combine the funds of multiple beneficiaries for investment purposes. Each beneficiary has a separate sub-account within the trust, allowing for collective management of resources.

It's crucial to consult with an experienced attorney specializing in special needs planning to determine which type of trust best suits your family's circumstances.

2. Selection of Trustee

The choice of trustee is another significant decision when establishing a special needs trust. The trustee will be responsible for managing the trust's assets and making distributions on behalf of the beneficiary. Families should carefully consider the following factors when selecting a trustee:

• Responsibility and Trustworthiness: The trustee should have a demonstrated ability to manage financial affairs responsibly and act in the best interests of the beneficiary.
• Understanding of the Beneficiary's Needs: It is essential for the trustee to have a comprehensive understanding of the beneficiary's unique needs, including their disabilities, health conditions, and aspirations.
• Knowledge of Government Benefit Programs: Familiarity with the rules and regulations governing government benefit programs, such as SSI and Medicaid, is crucial to ensure compliance and the protection of the beneficiary's eligibility.
• Long-Term Commitment: Serving as a trustee is a long-term commitment, requiring ongoing management of the trust's assets and decision-making. It's essential to select someone who is willing and able to fulfill this responsibility.

Some families opt to designate a family member or close friend as the trustee, while others prefer to appoint a professional trustee, such as a financial institution or a trust company, to ensure impartiality and expertise in trust management.

3. Provisions and Guidelines

When setting up a special needs trust, families must define clear provisions and guidelines for distributions. These provisions should outline how trust funds can be used and specify what expenses may be covered, such as medical care, therapies, education, assistive devices, transportation, and recreation. Consider the following when developing provisions:

• Specific vs. Discretionary Distributions: Families can choose to provide detailed instructions on how trust funds should be used or allow the trustee discretionary authority to make decisions based on the beneficiary's evolving needs and circumstances.
• Supplementing, Not Supplanting: It is crucial to ensure that the trust's distributions supplement, rather than replace, the government benefits the beneficiary may be receiving. This ensures continued eligibility for critical government assistance programs.
• Balance between Basic Needs and Quality of Life: Families must strike a balance between meeting the beneficiary's basic needs and enhancing their quality of life. Trust provisions should account for medical expenses while also allowing for opportunities to participate in social activities and pursue personal interests.

Working closely with an attorney experienced in special needs planning can help families establish provisions that align with the unique needs and aspirations of their loved ones.

4. Regular Review and Updates

Lastly, families should understand the importance of regular review and updates of the special needs trust. Circumstances may change over time, affecting the trust's effectiveness and ability to meet the beneficiary's needs. Regular reviews can ensure that the trust remains aligned with the beneficiary's evolving requirements and that it complies with any updates to laws or regulations governing government benefits.

It is advisable to review the special needs trust at least every three to five years or when significant events occur, such as changes in the beneficiary's health status, family circumstances, or financial situation. Working with an attorney specializing in special needs planning during these reviews can help address any necessary adjustments or additions to the trust.

Conclusion

Setting up a special needs trust involves several significant decisions that can greatly impact the financial security and quality of life of individuals with disabilities. By carefully considering the type of trust, selecting the right trustee, developing clear provisions and guidelines, and regularly reviewing the trust, families can establish a solid foundation for their loved ones' future. Expert legal guidance is crucial throughout the process to ensure that all decisions are made in the best interests of the beneficiary and in compliance with applicable laws and regulations.