Examples of Special Needs Trusts

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

Alice and Tom are a married couple with a 10-year-old child, Lily, who has Down syndrome. They have a combined annual income of $35,000 and limited assets, including a modest home and a small savings account. Lily receives Supplemental Security Income (SSI) and Medicaid benefits to help cover her living expenses and medical care.

Although Alice and Tom do not have substantial financial resources, they want to ensure that Lily is provided for after their passing and that her government benefits are protected. They consult with an estate planning attorney who is experienced in special needs planning.

The attorney helps Alice and Tom establish a third-party special needs trust, which will be funded with the modest amount of savings they have managed to accumulate, as well as a small 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 Lily's benefit, such as housing, education, therapies, transportation, and other supplemental needs not covered by government benefits.

Alice's cousin, Jennifer, agrees to serve as the trustee of the SNT. As trustee, Jennifer will be responsible for managing the trust's assets and making distributions for Lily's benefit in accordance with the trust's terms.

When Alice and Tom 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 Lily's personal resources for purposes of SSI and Medicaid eligibility, allowing her to continue receiving those benefits.

Jennifer, as the trustee, will make decisions on how to use the trust's funds to provide for Lily's supplemental needs, ensuring that her quality of life is maintained without jeopardizing her government benefits.

In this example, the low-income family uses a special needs trust to protect their child's financial future and maintain her access to critical government benefits. Even though the family has limited resources, the SNT allows them to provide for Lily's needs in a way that is tailored to her specific situation while preserving her eligibility for SSI and Medicaid.