So...what makes "Special Needs Trusts" so special? It is, in a way, an opportunity for your disabled child (or non-child beneficiary) to have her cake and eat it too. This is because the funds held in the name of the trust are there for the benefit of the child, yet it is not a "countable asset" when determining her eligibility for government benefits. This allows a situation where the government benefits cover her basic needs while the special needs trust can pay for the "luxuries" (things that the government will not pay for), thereby maximizing her quality of life. This is, of course, the ultimate goal of my special needs clients; making sure that their disabled child has the very best life possible if they are suddenly not there to help her out.
The restrictions are, first, that the child would have absolutely no control over the trust funds; she cannot write checks or make any type of withdrawal, make investment decisions or compel the trustee to make distributions. The trustee has absolute and full discretion over what happens with the trust funds.
Second, the trustee is given strict instructions in the trust language that he/she is not to make any distributions that would jeopardize government benefit eligibility. That is to say that the trustee cannot duplicate any spending that the government is already doing on the disabled child's behalf. So if the child is receiving Medicaid benefits then the trustee cannot pay for the basic medical costs that Medicaid covers. If the trustee does so, then the State could say that government benefits are no longer needed since the trust is covering basic medical costs.
These trusts are, obviously, complicated estate planning documents. My objective in this post and the previous post is to give you a very general overview of what special needs trusts are all about. But stay tuned for future posts where I will get into the nitty-gritty details of these trusts, such as how to select a trustee, different types of special needs trusts and other important issues.