Examples of Special Needs Trusts

In the example of the low-income family using a special needs trust (SNT) for their child, Lily, with Down syndrome, Alice and Tom can involve extended family members to contribute to the trust. This can provide additional financial support for Lily while still preserving her eligibility for government benefits.

Extended family members, such as grandparents, aunts, uncles, and other relatives, can contribute to the third-party special needs trust established by Alice and Tom. They can make cash gifts, transfer assets like stocks, or name the trust as the beneficiary of their life insurance policies. This can help grow the trust's assets, providing more resources for Lily's supplemental needs.

For example, Alice's parents decide to make annual cash gifts to the SNT, and Tom's brother takes out a life insurance policy naming the trust as the beneficiary. By directing their gifts and life insurance proceeds to the SNT, these extended family members can contribute to Lily's financial security without affecting her eligibility for Supplemental Security Income (SSI) and Medicaid benefits.

Jennifer, the trustee of the SNT, will continue to manage the trust's assets and make distributions for Lily's benefit in accordance with the trust's terms, ensuring her quality of life is maintained without jeopardizing her government benefits.

Involving extended family members in contributing to the special needs trust can be an effective way to provide additional financial support for a child with special needs while still preserving their access to critical government benefits.