by Kristen Ishihara and Chris Parker with Ishihara & Parker Law Firm PLLC

Estate planning can feel overwhelming, especially when you're trying to make sure your loved ones are taken care of after you're gone. But if you have a child or a family member with special needs, the process requires extra care to ensure their long-term well-being. That's where a Special Needs Trust (SNT) comes in. Let’s break it down in simple terms and talk about why it’s so important.

What Is a Special Needs Trust?

A Special Needs Trust (SNT) is a legal tool designed to hold assets for someone with disabilities without jeopardizing their eligibility for government benefits like Medicaid or Supplemental Security Income (SSI). Why does this matter? Because these benefits are often income-based, and if your loved one suddenly inherits money directly, they could lose access to essential services.

A properly set up SNT allows them to receive financial support without losing those critical benefits. Instead of giving them money outright, the trust holds and manages the funds for their benefit.

Why a Will Isn’t Enough

Many parents think, “I’ll just leave money to my child in my will.” But here’s the problem: if your child receives an inheritance directly, they might no longer qualify for Medicaid or SSI. Even worse, they could end up having to spend all that money before becoming eligible again.

An SNT avoids this by keeping the money in a protected account, ensuring your child still gets the benefits they need while also having access to extra funds for things like:

• Medical treatments not covered by insurance
• Caregivers
• Special therapies
• Education
• Travel and entertainment

Choosing the Right Trustee

The person who manages the trust is called a trustee, and picking the right one is crucial. This could be:

• A trusted family member
• A professional fiduciary
• A lawyer or financial institution

The trustee is responsible for making sure the money is used wisely and in line with the trust’s rules. They must understand how government benefits work to ensure the funds don’t accidentally disqualify the beneficiary.

What About Beneficiary Designations?

One common mistake people make is naming their child directly as a beneficiary on life insurance policies or retirement accounts. If your goal is to protect their benefits, that money should go directly into the SNT instead of to them personally.

For example, instead of naming your child as the beneficiary, you would list “The Special Needs Trust for [Child’s Name]” on the policy or account. This way, the funds stay protected while still benefiting your loved one.

Setting Up an SNT: Where to Start

Setting up an SNT isn’t something you should DIY. There are a lot of legal nuances, and mistakes can be costly. Working with an estate planning attorney who specializes in special needs planning is the best way to ensure everything is done correctly.

Some key steps include:

1. Determining the type of trust – There are different kinds, like First-Party SNTs (funded with the individual’s own assets) and Third-Party SNTs (funded by parents or others).
2. Choosing a trustee – Someone responsible and knowledgeable.
3. Funding the trust – This could be through savings, life insurance, or other assets.
4. Updating beneficiary designations – Ensuring assets flow directly into the trust instead of to the individual.

Final Thoughts

A Special Needs Trust is one of the most effective ways to ensure a loved one with disabilities is cared for, both financially and legally, without losing access to essential benefits. If you haven’t started planning yet, now is the time to look into it. With the right steps in place, you can have peace of mind knowing your loved one will be secure for the future.

Thinking about setting up an SNT? Consult with an estate planning attorney to make sure everything is structured correctly for your family’s unique situation.

By taking the time to plan, you’re not just securing finances—you’re securing peace of mind for both you and your loved one. Have questions? Drop them in the comments below!

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