Monday, August 7, 2017

Special Needs Trusts

Information from the Arc of the Mid-South

Christina Clift

By Christina Clift
On Thursday, August 3, 2017 I attended a workshop on Special Need Trusts at the Arc of the Mid-South.  The presenter was Deborah K. Brooks, a local lawyer and friend to the disability community. 

First, it is worth noting that the word “special” in Special Need Trust (SNT) does not refer to the person or their disability, but instead the word describes the needs that the trust will be used for.  In some states these trusts are called Supplemental Needs Trusts. 

The next thing to know about Special Needs Trusts is that the funds cannot be used to purchase food or pay rent or a mortgage.  Finally, funds that are withdrawn from the SNT are never payed directly to the person or beneficiary, but they are sent directly to the vender. This blog is not meant to be the holy bible of Special Needs Trusts, for that you would need to hire a lawyer.  The purpose is to hit the highlights.

A Special Needs Trust is used to set aside funds for future care.  This can include transportation, training, assistive technology, clothing, personal care, funeral and burial expenses, legal fees, financial management, and more.  However there are two areas that these funds are not allowed to be used for: purchasing food and paying for housing. The primary reason most people decide to establish a Special Needs Trust is to set money aside so that it is not considered as a countable asset when looking at applying for benefits such as Medicaid, food stamps or other means-based programs.  For example, if the person establishing a Special Need Trust receives SSI benefits of $750.00 a month, according to the federal government, the SSI benefits are to be used to pay for food and shelter.

“Parents with children 18 years of age or who are 3-months away from their 18th birthday, must gain either power of attorney or a conservatorship in order to keep making financial and health related decisions for their child,” said Deborah Brooks. “Otherwise, in today’s society, no one has to talk with you about your child.”  

The first type of Special Needs Trust (SNT) is called a first-party SNT.  This means that the money used to open the trust belongs to the individual it is being set up for.  This cannot be money that you have had lying around in a bank account for seven years, but must come from an immediate source of money such as an inheritance or settlement from a lawsuit.  In fact, you have only nine months from the date of receiving the funds to establish the SNT.  It is best when setting up a SNT, to use a corporate trustee rather than a family member due to the complicated nature of the laws governing SNT. 

“The laws controlling Special Needs Trusts are as tough as banking laws,” stated Ms. Brooks. 

Christina Clift

Some of the items that could be purchased using a SNT include clothing, assistive technology, a vehicle, TV, or laptop.  But it cannot be used for dinner at your local steakhouse or a box of chocolates on Valentine’s Day. 

A first-party SNT can be established either to stand alone or in a pool.  A pool SNT combines hundreds of SNT with smaller monetary value into one large group to gain more from investments.

The next type of SNT is basically the same as a first-party SNT.  The main difference is the source of money that is used to establish it.  In a first-party SNT it is the individual’s funds that are used to start it. However, in a third-party SNT it is someone else’s money that is used to start the trust.  This could be money that a parent, grandparents, or friend sets aside.  Just as in a first-party SNT, the funds cannot be used for food or to pay for housing.  The funds are also sent directly to the vender or to reimburse someone for buying an allowable item.

For example, if the individual’s brother purchases a pair of needed Nike shoes for $150.00, a train ticket for $300.00, and pays rent for December for $500.00, he can only be reimbursed $450.00.  The $500.00 for rent is not reimbursable because it is not an allowable expense. 

What happens to money in Special Needs Trusts if the beneficiary dies?  In order for the state of Tennessee to recoup some of the cost of providing care, they attempt to recover some of the cost by ceasing any remaining assets once that person dies.  This includes a house or remaining funds in a SNT.  For most people, all of the money in the SNT is spent before they die.

The final type of trust is an ABLE account.  ABLE accounts were passed into law by Congress in 2015 and are quite similar to Special Needs Trusts.  However, ABLE accounts can be used to cover housing expenses.  They also are only used for people who were diagnosed with their disability before the age of 26.  They are set up through the Department of Revenue and can only have up to $100,000.00 balance.  If the balance exceeds $100,000.00 the beneficiary’s SSI benefit will be suspended not terminated until the balance is under $100,000.00. Contributions can be made by anyone and cannot exceed $14,000.00 a year.  If you are interested in learning more about ABLE accounts visit

With a little bit of preplanning by families, Special Needs Trusts and ABLE accounts provide a mechanism to qualify for means-based services.  While they are not perfect, they enable people with disabilities to protect money that they otherwise would have to spend-down to qualify for services.  The most important thing to remember is to work with a lawyer when setting a SNT up.