Provisions for Special Needs Trusts: What to Consider and Include

For long-term planning purposes as well as shielding a recipient’s ability to receive government benefits now and in the future, the special needs trust is a powerful tool. As with any trust, the proper drafting and language inside such a trust are critical to ensure the terms are followed and that they accomplish the desired goal.

Photo by Nathan Anderson on Unsplash

Basics of Special Needs Trusts

Most special needs trusts will have several elements in common before you dive into the more complicated provisions specific to your individual situation. A special needs trust is professionally and privately managed by a trustee. That trustee distributes assets inside the trust for the benefit of a person with disabilities or other benefits and the trustee holds the official legal title to the funds inside. This gives parents peace of mind that a child with disabilities will have access to much-needed funds in the future without having to worry about the child’s critical government benefits.

Trust Funding Provision

A provision inside the trust should explain the method of trust funding. Most trusts will include language that the grantor or settlor can transfer in any real or personal property they see fit.

Distribution of Income and Principal Provision

As with any trust, a special needs trust should contain language about how the assets should be distributed in the trust. In the case of caring for a child with disabilities, however, the trustee’s powers should not be broad in a discretionary sense. Providing support for non-government-recognized purposes could lead the beneficiary to lose Medicaid or other benefits.

This provision may include language that distributions are not to be made in any manner that would disqualify the recipient from local, state, and federal benefits, and that if any government agency references the trust for the purposes of denying these benefits, that the trustee may terminate the trust entirely.

Trustee Powers Provision

The trustee plays a critical role in all trusts, and he or she should feel confident in this role and ideally have experience serving the fiduciary duty of a special needs beneficiary in the past. The trustee may be accorded very specific powers such as to purchase policies of life insurance, to exchange or mortgage any personal or real property, to borrow money or lend money, to allocate realized capital gains to principal or income, to vote regarding shares of corporate stock owned by the trust, to give or exercise options for sales, exchanges, and leases, and to make distribution in cash or in kind.

Trustee Compensation

As the trustee is performing a service, and one that may last for many years depending on the age of the beneficiary, the trustee is entitled to compensation. Most of these trust provisions will include language that the trustee may take reasonable compensation; a conversation with your estate planning lawyer can advise whether further specificity may help to clarify what is considered reasonable. The trustee does have a fiduciary duty to exercise discretion over the funds in the trust, and legal action may be pursued for a trustee who appears to have breached this duty. However, an adult with special needs may not understand his or her rights with regard to fiduciary duties carried out by the trustee, so further clarity may help to guard against unreasonable trustee fees.

Provision of Statements

The adult with special needs may have a guardian or personal representative who can help to review statements on a regular basis. The trust should include language about how often these statements are to be provided and in what manner is most appropriate.

The special needs trust should always be crafted with long-term intentions and protection for the beneficiary in mind.

If you need a special needs trust, are interested in taking the next step in drafting your trust, or you have other estate planning questions, then schedule a free 30-minute consultation today and let us provide you with the tools you need to reach your estate planning goals.

This article is provided as a public service by the the Law Offices of C. David Martinez, PLLC. While the information on this site is about legal issues, it is not legal advice or legal representation. Because of the rapidly changing nature of the law and our reliance upon outside sources, we make no warranty or guarantee of the accuracy or reliability of information contained herein.