If you or a loved one has special needs, it can be challenging to find the right resources to live a quality life. Thankfully, special needs trusts (SNTs) can provide much-needed assistance to government benefits. As with any trust, there are rules about how you can set up these types of trusts and spend assets. Let’s look at the new rules for special needs trusts and find out how opening a special needs trust can help a special needs loved one live a better life.
Two Kinds of Special Needs Trusts in NC
There are two types of Special Needs trusts in North Carolina. Depending on your needs, either can work well for a special needs individual.
Supplemental Care SNT
A supplemental care SNT is a source of benefits for the disabled individual who also wants to qualify for need-based government benefits. Need-based government programs do not count this type of trust as income for a disabled individual. With a supplemental care SNT, it is easier to be eligible for crucial benefits such as transportation, health insurance, and housing from government sources.
General Support SNT
A general support SNT is an income source for a disabled family member and counts toward available resources when government programs consider eligibility. A general support SNT can cause a disabled or special needs person to not qualify for the services they need. With a general support SNT, you usually pay for your transportation, health insurance, and housing from the trust funds.
Comparing General & Supplemental Special Needs Trusts
A general support SNT often does not maximize a family’s resources. For example, if Aunt Susan wants to establish a trust for her niece with 2 million dollars, the family may feel elated. However, even though this money may cover her niece’s expenses for her lifetime, any funds left may go to the state when her niece, the beneficiary, dies. Alternatively, a supplemental care SNT can cover her niece’s expenses with possible money left over for someone else to inherit.
A supplemental care SNT is a partnership between the trust grantor and the government to care for the needs of a disabled individual. Because of this, the government pays for the majority of needed care, often including assisted living costs. However, a general support trust fully funds the disabled individual for the foreseeable future, often without any help from community resources.
Special Needs Trust Spending Rules
When an experienced special needs trust attorney draws up the trust, a special needs individual may use trust funds for a wide variety of services and products that improve the quality of life of a special needs individual. Attorneys experienced in this area understand the legal language needed to help broaden the uses available to the disabled individual for spending on their needs.
As a differently-abled or disabled individual, you need to care for your immediate needs, such as medical, eyesight, dental, living arrangements, etc. However, once you’ve taken care of your basic needs, your SNT can fund your quality of life options. These items can include various services and products, including hiring a personal assistant or refitting your home.
There are other everyday things an SNT commonly disburses funds for, such as:
- Vocational and recreational activities
- Vacations and hobbies
- Opportunities for training and education
- Any communication equipment needed
- Professional services required by the beneficiary, such as claims processors, accountants, attorneys, and more
- A service animal or pet for the beneficiary
Many of the disbursements received from an SNT are permissible due to the creative drafting by the attorney. The trust documents need to show that the beneficiary derives the primary benefit.
New Rules for 1st Party Special Needs Trusts
If you fund a trust with your own money or assets, it’s called a self-settled trust. Other names include self-settled and d4a special needs trusts.
This type of trust is subject to more governmental regulations than a trust funded by 3rd party funds. There are rules about when you can open a self-settled special needs trust and what happens to the assets when you pass away.
However, an older rule mandated that disabled individuals could not open or draw up a self-settled trust themselves. They had to rely on a parent or grandparent or go to court to gain the right to open a self-settled trust for themselves as beneficiary. However, that rule no longer exists.
The Special Needs Trust Fairness Act of 2016 established the new rule. The section “Fairness in Medicaid Supplemental Needs Trusts,” added the words “the individual” to the list of those permitted to act as the grantor to establish the trust. (1)
With a self-settled special needs trust:
- You must be under age 65 when establishing the trust
- Social Security must define you as “disabled.”
- You must be unable to earn any substantial income (if you do work and earn a considerable income, you lose your disability eligibility with Social Security)
In addition, when you die, the government can send a bill to your estate to collect the cost of your care while you were living! For the self-settled special needs trust, the trust must designate the state as the primary beneficiary. In other words, a self-settled trust may not leave much or anything at all behind for any heirs.
3rd Party Funded Trusts Offer More
However, when a 3rd party, such as a parent or aunt, funds a trust for you, there is:
- No age limit
- No need to qualify as disabled through Social Security to receive distributions as the beneficiary
- You don’t need to worry about losing all of the money in the trust to the State of North Carolina after you die.
There is a reason why most families with a disabled or special needs individual choose to open a 3rd party special needs trust. However, every situation is unique. Discussing the precise details of your assets and needs can help an experienced special needs trust attorney write up the best type of trust for you and your family’s needs.
A special needs trust can help maximize family assets as the disabled individual can often qualify for government benefits and meet additional needs through their special needs trust. Even if your family has enough to manage helping a disabled family member in totality, a trust can still be helpful. A trust can administer money as needed to a family member who should not manage their own finances.
In addition, if you set up a 3rd Party Supplemental Special Needs Trust for a young person, they can easily apply for governmental benefits later if needed.
We Can Help
At Hopler, Wilms, and Hanna, our special needs trust attorneys have years of experience helping families with special needs members. We can help you determine if a special needs trust is suitable for your family and then work with you to set it up correctly. Give us a call or contact us online today to schedule an appointment.