Caring for a lifetime of needs takes a plan. A special needs trust is a way to design, direct and provide financial funding to assure your family or loved one is taken care of if you are not able to do so. Also known as a supplemental needs trust, this trust is an excellent way to give specific direction for those with disabilities.
This type of trust is a vehicle designed to set aside assets in order to provide funds for expenses that aren't covered by other programs. These programs are intended to provide for basic needs, such as food, clothing, medical care and shelter. Assets inside the trust can also be used for the supplemental needs such as, education, transportation, entertainment, travel and out-of-pocket medical and personal care expenses.
How to set up a special needs trust
Designing and implementing a program for a special needs individual takes a team of professionals. A guardian to oversee the physical and emotional well-being of the individual, a trustee to manage funds, and a qualified special needs attorney to help navigate the process of collecting and filing vital documents.
Your State Farm® agent and trusted financial professional can help build a program that works for you. And be sure to consult your tax and legal adviser regarding your situation.
- Parents (Grantor) implement a special needs trust. The first step is to get an attorney who is experienced in special needs planning and disability trust funds. Their knowledge and guidance is invaluable in what can and can’t be done.
- Funding the trust. Funding can be done through lifetime gifts of most anything of value, or the use of life insurance. Professional involved:
- A qualified tax adviser experienced in gifting, and
- Life insurance agent.
- Administering a trust. A trust can be administered by a person or institution acting as a trustee. Professional involved:
- An attorney qualified in special needs planning and/or a qualified tax-adviser.
How to fund a special needs trust
Once established, anyone can contribute money or assets to the trust. Oftentimes, special needs trusts are funded through the use of life insurance. Over time, and after the death of the caregiver(s), it can provide a larger sum of money than making the same premium payments directly to the trust. Any type of policy is eligible, but when parents are the primary caregivers, typically Survivorship Universal Life (SUL) is used.
Having a trust, and a method of funding the trust, gives you the space to concentrate on additional family and personal priorities, knowing that the lifelong financial needs of the individual with special needs can be addressed.
Making sure gifts help
Understanding special needs trust rules is very important to know what the funds in them can be used for and how best to gift money for them. In this hypothetical situation, Kate decides to lovingly gift each of her grandchildren $15,000 when they reach age 21. One of Kate’s granddaughters has Down syndrome; by directly accepting the gift, the granddaughter's assets may exceed the resource limits defined by Social Security, potentially rendering her ineligible for Supplemental Security Income (SSI) and medical benefits.
What could Kate do differently? Kate could gift the money to the special needs trust, or she could purchase a single premium life insurance policy, listing the trust as owner and beneficiary. Over time, the guaranteed cash value and dividends (when payable) can be used for the trust's immediate use, or the dividends could purchase paid-up additional insurance to increase the total death benefit payable to the trust