Considerations when Establishing a Special Needs Trust

By Andrew Deaver

If you are considering creating a special needs trust (SNT) for yourself, or your loved one, two critical considerations are:
(1) whose assets are being used to fund the trust; and
(2) who should serve as trustee.

ASSETS
It is important to consider whose assets are being used to fund the trust because the answer will determine which type of SNT is utilized. A first-party SNT and third-party SNT are two of the more common types of special needs trusts. A first-party SNT is funded with the assets of the beneficiary. These trusts can be created when the beneficiary stands to receive a settlement or an unexpected inheritance. First-party SNTs are subject to required Medicaid reimbursement. This means that when the beneficiary of the SNT passes away, the State Medicaid Agency or Agencies must be repaid for all benefits paid to the beneficiary.

On the other hand, a third-party SNT is created and funded with the assets of someone other than the beneficiary, such as a parent, grandparent, or relative, for the benefit of the beneficiary. These assets are not subject to Medicaid reimbursement because they never belonged to the beneficiary.

TRUSTEE
Trustees are responsible for managing the assets owned by the trust and administering those assets according to the terms of the trust and in accordance with the Nebraska Uniform Trust Code. Trustees of SNTs also need to know and understand how management and administration of the trust will impact the beneficiary’s government benefits under federal and state public benefits laws, regulations, and policy manuals.

Most people typically choose between a relative, family friend, or a professional trustee to serve as trustee. The benefit of having a relative or family friend serve as trustee is that he or she has already established a relationship with the beneficiary and has an intimate knowledge of the beneficiary’s needs. However, relatives or friends need to have a working knowledge of the applicable state laws and regulations, not only to comply with laws but also to preserve the trust’s intended purpose of benefiting the beneficiary. This can be a steep learning curve. As a result, people sometimes opt for a professional trustee.

A professional trustee is more familiar with the rules and regulations governing SNTs and can likely serve as the trustee for the life of the beneficiary. A professional trustee, however, is typically more expensive than a relative or family friend and does not have a relationship with the beneficiary at the outset. Ideally, the professional trustee will develop a relationship with the beneficiary over time, but that is not always the case.

Your special needs planner can help you determine which type of trust best suits your particular circumstances and can help you walk through the process of choosing a trustee. Abraham Kaslow & Cassman LLP has over 75 years of experience counseling individuals and families on estate planning needs. Our attorneys are members of the Academy of Special Needs Planners – a network of attorneys and financial planners who provide special needs planning services. Contact Tyler at 402.392.1250 or by email at [email protected].