Examples of Special Needs Trusts

Here's an example of a high-income family using a special needs trust (SNT) to provide for their child with special needs:

Robert and Emily are a married couple with a 12-year-old child, Michael, who has cerebral palsy. They have a combined annual income of $400,000 and own significant assets, including their primary residence, a vacation home, investments, and retirement accounts. Although Michael does not currently receive government benefits due to the family's income and assets, they want to ensure he will have access to these benefits if needed in the future.

To secure Michael's financial future and preserve his potential eligibility for means-tested government benefits, such as Supplemental Security Income (SSI) and Medicaid, Robert and Emily consult an estate planning attorney with expertise in special needs planning.

The attorney helps them establish a third-party special needs trust, which will be funded with some of their investments, as well as proceeds from a life insurance policy naming the trust as the beneficiary.

The trust is set up with specific instructions regarding how the funds should be used for Michael's benefit, such as housing, education, therapies, assistive technology, personal care services, and other supplemental needs not covered by government benefits.

Robert and Emily appoint a professional trustee, such as a bank or trust company, to manage the SNT.

As trustee, the institution will be responsible for managing the trust's assets and making distributions for Michael's benefit in accordance with the trust's terms.

When Robert and Emily pass away, the assets designated for the SNT, including the life insurance proceeds, will be transferred to the trust. The assets in the SNT will not be considered Michael's personal resources for purposes of SSI and Medicaid eligibility, allowing him to access those benefits if needed.

The professional trustee will make decisions on how to use the trust's funds to provide for Michael's supplemental needs, ensuring that his quality of life is maintained without jeopardizing his government benefits.

In this example, the high-income family uses a special needs trust to protect their child's financial future and maintain his potential eligibility for critical government benefits. The SNT allows them to provide for Michael's needs in a way that is tailored to his specific situation while preserving his potential access to SSI and Medicaid.