The estate planning device known as a "special needs trust" has become the cornerstone of financial and estate planning for families with a special needs child. Many families have used this estate planning tool with great success, but special needs trusts cannot be viewed as "one size fits all" planning tools. Every situation is different, and every special needs trust must be tailored to the individual beneficiary.
One of the principal concerns of drafting a special needs trust is ensuring that the beneficiary remains financially eligible for a number of government programs that tie eligibility to financial status. In theory, a special needs trust holds assets for the beneficiary without disqualifying the beneficiary from federal aid programs, such as Medicaid and Supplemental Security Income. To qualify for these programs, a person cannot own more than $2,000 in assets. A special needs trust transfers enough of the beneficiary's assets to the trust so that the beneficiary stays within this limit.
The trust instrument must permit the assets in the trust to be used for the care and maintenance of the beneficiary without interfering with the beneficiary's eligibility for either Medicaid or SSI. Most special needs trusts allow trust assets to be used to pay for education programs, a phone, clothing or other extras.
A second concern is choosing a capable trustee. Many banks offer professional trustee services, but the fees for these services can be very high. Many attorneys also act as trustees. Choosing a friend or relative entails several risks. The trustee should be knowledgeable about government special needs assistance programs so that they will not inadvertently make a decision that makes the beneficiary ineligible. A friend, no matter how dear, may not possess the skill or knowledge to serve capably.