Special needs trust in Massachusetts: Is it right for your loved one?

Special needs trusts can supplement the income of a disabled loved one without resulting in disqualification of government programs.

Special needs trusts are designed to benefit an individual with mental or physical disabilities. Since a trustee has total control over the assets, government program administrators often ignore the funds within these trusts when considering eligibility for certain programs. As a result, a properly structured special needs trust can provide supplemental income to a disabled recipient without disqualifying that recipient from government programs like Supplemental Security Income, Medicaid, vocational rehabilitation and subsidized housing among others.

The use of these trusts is protected by law as they are specifically authorized within the Omnibus Budget and Reconciliation Act of 1993. Although protected, the American Bar Association notes that certain conditions must be met for the special needs trust to survive. These conditions include:

  • Age. The beneficiary of the trust must be under the age of 65 at the time the trust is established.
  • Irrevocable. In order to be a valid special needs trust, it must be irrevocable. This essentially means once the trust is funded, it cannot be changed.
  • Control. The trustee must be given "sole and absolute discretion over the use of the trust funds". This means language within the trust generally cannot require the trustee follow a schedule payment plan to provide funds to the beneficiary.

In addition to having a basic understanding of how these documents are structured, it is also helpful to be aware of the different types of special needs trusts that are available.

Types of special needs trusts

A recent publication by the Massachusetts Bar Association, a group of legal professionals from throughout the state, discussed these trusts. It focused on the two main categories of special needs trusts (SNT): those funded by a disabled individual’s own assets or those funded by someone else.

A self-funded SNT, or those funded by the disabled individual’s own assets, is helpful in many situations. One example involves inheritance. If another family member or loved one left a bequest to the disabled individual without taking the potential impact on the recipient’s ability to qualify for governmental programs into consideration, a self-funded SNT might be beneficial. The inheritance can be used to fund the trust without disqualifying the recipient from these benefits, but any remaining assets at the time of the beneficiary’s death must be used to pay back the government’s Medicaid costs. These trusts generally must be set up by a guardian, conservator or court order.

In contrast, assets that remain in trusts that are funded by someone other than the disabled individual are not required to be used to pay back the government. Instead, these funds can be dispersed to other beneficiaries.

Importance of legal counsel

The National Special Needs Network notes that special needs trusts are a "living legal document that is meant not only to maintain benefits eligibility, but also to bring enjoyment and new, positive experiences to the beneficiary." Although a trustee has control over the assets, the trustee can use these funds to purchase the beneficiary a computer for educational and recreational purposes or even fund vacation expenses for the beneficiary and a caregiver.

These are just a few of the many benefits of a special needs trust. Those who are considering funding this type of trust for a loved one are wise to seek the legal counsel of an experienced estate planning attorney. These legal tools need to be crafted carefully to ensure their intended benefit is fulfilled.