Can someone other than a parent open or contribute to a Special Needs Trust for an individual? For example, a friend or grandparent?
If it is a third party SNT, yes. Anyone over the age of 18 can open and/or contribute to an SNT for the benefit of someone receiving government benefits.
Should the Special Needs Trust be partially funded when setting it up (or a small token amount)?
If you are creating an inter vivos SNT (created by a living person for the benefit of another person), it should be partially funded. Typically, it can be the minimum amount required to open a bank account. You can also fund the SNT through a life insurance policy, i.e., name the SNT as the beneficiary of the life insurance policy. Or, you can even use other assets to fund the SNT like business interest, stocks, bonds, real estate, etc.
How frequently should the trust be reviewed by a lawyer?
Estate plans should be looked at every 5-10 years or upon a significant life event, i.e., divorce, fiduciary appointment passes, certain changes in law, etc.
For the money that goes into a trust for your child, what happens if you child dies with money remaining in the trust? Is it possible to have the unused portion of the trust be inherited by other family members?
For a third party SNT, you designate in the Trust Agreement who you want inheriting the money upon the death of the disabled beneficiary. In many cases, the trust terminates upon the death of the disabled beneficiary and the trust estate either gets distributed according to the trust agreement and the designated secondary beneficiaries or it falls into the decedent’s estate. I do not recommend letting the latter happen. For a first party SNT, there is a mandatory Medicaid payback provision.
Should the Special Needs Trust lay out specific things that the trust money will cover or is there a general term that can be used by the executors to ensure that unforeseen needs can be met (for example, a specifically equipped van that wasn’t needed when the trust was set up)?
It is best to leave the distributions to the beneficiary fully discretionary (Trustee has complete control); however, I recommend putting examples in the Trust Agreement, i.e., certain specialty van, etc.
What happens if someone leaves money unexpectedly to the child? Can the trust specify that any money left to him/her be routed to the trust so that this unexpected inheritance doesn’t affect services?
You MAY be able to in certain states so long as the Medicaid reporting requirements are followed. If someone leaves money outright to a person receiving government benefits, there are ways to fix it, but you will want to contact an attorney ASAP because it varies by state law and particular Medicaid program. I strongly recommend setting up a third party SNT now so that you don’t run into any problems like this where you may have to create a first party SNT, which is funded by the child’s own inheritance money because then it is subject to the Medicaid payback requirement. At least if there IS a third party SNT already set up, it is a better argument to have grandma’s bequest paid out to the SNT instead of the disabled person outright.
Does the trust need to have an executor? What if the executor passes away?
Your Will needs to list an Executor. The trust needs to have a Trustee and you should have 2-3 alternatives/back-ups in case the first designation passes away. If you do not have alternate Trustees willing to serve, you can elect to create a Pooled Trust where a nonprofit serves as Trustee or appoint a Corporate Trustee.
When should the trust be set up? How long does the process take?
I would set it up now either through your Will or as a stand-alone. It depends on the attorney’s availability, but it shouldn’t take more than 2 meetings. Hire an attorney that understands how to fund the trust and has knowledge of the tax implications.
Do all trusts work in one state once created? Or, if the person moves to a different state, does a new trust need to be made/current trust updated?
It is wise to get an attorney in your state to at least review it if you move. For example, there may be different reporting requirements. The variance in the laws is more about the administration of the trust and to be sure there are the required provisions in the Trust Agreement based on state law.
What can the funds in a special needs trust be used for?
Do not use trust funds on anything that Medicaid or SSI pays for and do not give any funds to the special needs child/disabled person outright.
From an estate planning perspective, what is the maximum amount of money you would recommend leaving to a special needs trust? We have two other typical children, and we don’t want to over-capitalize a special needs trust when we pass, especially given we have two other children.
As a special needs mom and attorney, I would advise having a life insurance policy for your typical children and one for your special needs child through the third party SNT, if you are able to do so. There is no maximum amount for a special needs trust, but I would base it on the child’s current lifestyle and how you want that child to live throughout their life.
What happens to left over funds in the trust when our special needs child passes? In what instances are they clawed back by the state vs distributed to the trustees?
For a third party SNT, you designate in the Trust Agreement who you want inheriting the money upon the death of the disabled beneficiary. In many cases, the trust terminates upon the death of the disabled beneficiary and the trust estate either gets distributed according to the trust agreement and the designated secondary beneficiaries or it falls into the decedent’s estate. I do not recommend letting the latter happen. For a first party SNT and ABLE Account, there is a mandatory Medicaid payback provision.
Is an adult disabled 19-year-old (who I have legal guardianship of) living with me and paying rent to me with his SSI money considered a dependent of mine still? Asking for tax as well as legal purposes.
It should be.
Are the rules of the Special Needs Trust different from state to state?
Unfortunately, yes. It is wise to get an attorney licensed in your state to help with your estate plan, including the special needs trust and to at least review your estate plan if you move. For example, there may be different reporting requirements. The variance in the laws are more about the administration of the trust and to be sure there are the required provisions in the Trust Agreement based on state law.
Do you have to have a Will to create a special needs trust?
No. Although, it is strongly recommended to have a Will and an understanding of your estate plan, especially if you are a special needs parent.
