Planning for a Loved One with Special Needs

What Is a Special Needs Trust?

At its core, a trust is a legal arrangement in which assets are managed by one party for the benefit of another. A trust typically involves three roles:

• The grantor, who creates and funds the trust
• The trustee, who manages the trust assets and makes distributions
• The beneficiary, who receives the benefit of the trust assets 

A Special Needs Trust is designed specifically for individuals with disabilities and can help provide financial support without jeopardizing eligibility for means-tested government programs such as Medicaid or Supplemental Security Income (SSI). 

Why Families Use Special Needs Trusts

Many public assistance programs have strict asset and income limits. If a beneficiary receives assets directly through an inheritance, gift, or settlement, those resources could impact eligibility for important benefits.

A properly structured Special Needs Trust can help:

• Preserve eligibility for public benefits
• Supplement expenses not covered by government programs
• Provide financial security throughout a beneficiary's lifetime
• Enhance quality of life through additional support and resources
• Direct any remaining assets according to the family's wishes after the beneficiary's lifetime 

Different Ways to Create a Special Needs Trust

Depending on your situation, a Special Needs Trust can often be established through:

A Will

A trust can be created within a will, with assets funding the trust upon the grantor's death. 

A Revocable Living Trust

Families who already have a revocable trust can often include Special Needs Trust provisions within their broader estate plan. 

A Standalone Trust

A standalone trust is a separate document that can be created and funded during the grantor's lifetime. This approach allows planning to begin immediately rather than waiting until after death. 

Regardless of the structure you choose, your family should work with qualified legal professionals to ensure the trust is drafted appropriately and coordinates with your overall estate plan. 

Understanding Third-Party and First-Party Special Needs Trusts

Not all Special Needs Trusts are the same.

Third-Party Special Needs Trusts

These trusts are funded with assets belonging to someone other than the beneficiary, such as parents, grandparents, or other family members. The assets never belong directly to the beneficiary, helping preserve benefit eligibility. 

With third party trusts, families can typically decide where any remaining assets go if the beneficiary passes away. 

First-Party Special Needs Trusts

These trusts are funded with assets that belong to the individual with disabilities, such as a personal injury settlement or inheritance received outright. In some situations, placing those assets in a properly structured trust can help maintain benefit eligibility. However, first-party trusts may be subject to Medicaid payback rules upon the beneficiary's death. 

Don't Overlook ABLE Accounts

Another planning tool families may want to consider is an ABLE account.

ABLE accounts are tax-advantaged savings accounts designed for individuals with disabilities. Funds can generally be used for qualified disability-related expenses, including:

• Education
• Transportation
• Housing
• Assistive technology
• Personal support services
• Employment support and job coaching 

ABLE accounts can help encourage financial independence while still preserving eligibility for many assistance programs. They can also complement, rather than replace, a broader Special Needs Trust strategy. 

Other Planning Considerations

Financial planning is only one part of caring for a loved one with special needs. Families may also need to consider:

Representative Payee Arrangements

For individuals receiving Social Security benefits who need assistance managing funds, a representative payee may be appointed to help oversee those benefits. 

Healthcare and Financial Powers of Attorney

When appropriate, powers of attorney can help ensure trusted individuals can assist with important medical and financial decisions. 

Guardianships and Conservatorships

Depending on a person's level of independence and decision-making capacity, families may determine that guardianship or conservatorship arrangements are necessary. These legal tools can provide additional support in managing personal, medical, or financial matters. 

Start the Conversation Early

Every family's situation is unique, and there is no one-size-fits-all approach to special needs planning. Taking time to understand the available tools and discussing options with trusted legal, tax, and financial professionals can help families build a plan that supports their loved one's long-term well-being. 

While topics like trusts, benefits, and guardianship can seem overwhelming, a thoughtful plan today can help provide greater confidence and peace of mind for the future. If you’d like help getting started, please give us a call at 319-338-1522, send us an email at wealthmanagement@hillsbank.com, or connect with a Hills Bank advisor. 

Investment products are not insured by the FDIC, are not deposits, and may lose value. Tax and legal information provided is for general informational purposes only and is not intended as tax or legal advice. Consult your tax advisor, CPA, or attorney regarding your specific situation.