What is a Special Needs Trust?

Attorney Tom Olsen: Robert, just because I have a client in this situation, I want to talk about a special needs trust. Her sister has had a stroke and has some issues, and so the sister wants to set some money aside for her sister, and that would be done via a special needs trust. Let's make it simpler, let's just say the sister, our client, has a brother that's had a stroke so we don't get those confused pronouns, okay. The brother's had a stroke and his sister wants to set aside some money for the brother's care going forward, and we might use a special needs trust for that purpose. Tell us about a special needs trust.

Attorney Robert Hidock: Okay, so there are really two types of special needs trust. The one that we would be talking about in this instance, it's called a third-person special needs trust. The reason why it's a third-person is because his sister is creating the trust for him, for his benefit. Sometimes when we do early plannings of a special needs trust, it's just language that we have in a trust. This one, we would fully actually do the special needs trust where maybe sister is the grantor of the trust, she is also the trustee, and she can use that money for her brother. Can't really give him cash, but can spend it on anything he would like, okay.

If there's any money left, the benefit of creating that special needs trust when you are the third person doing it is that the state does not have to be the beneficiary of it if that person is receiving benefits. They can pick the next beneficiary chain, avoid the state, and keep their brother perfectly comfortable, happy. He just can't spend the actual money himself, but as trustee, you're basically the vendor and you're buying a car or you're buying an 85-inch TV or you're making their life easier by buying them things that he had a stroke that might make his life a little bit more easy.

Tom: Or you're paying their rent or you're paying for their cell phone bill.

Robert: You're buying them a house or anything that they could need.

Tom: Right. I get you. Would the brother need to sign that special needs trust or could sister alone set it up?

Robert: The sister alone can set it up because in this case the brother is not going to be the trustee.

Tom: Okay. Let's say that the brother at this moment in time is not on any governmental benefits. Would she still be prohibited from giving him cash at this moment in time?

Robert: She could give him cash. You wouldn't want to give him a whole lot of cash because if the person lived in Florida, they'd be capped out at only allowing to have $2,000 in assets in their name.

Tom: Yes. What I'm saying is that until the brother goes on governmental benefits, she can give him a monthly allowance of $2,000 and let him pay his own rent and so forth, but the moment the governmental benefits come in, they got to change the way they do business.

Robert: They would have to.

Tom: Yes. The beauty about that is it would allow the brother to still qualify for whatever governmental benefits that the brother might be entitled to and the sister gets to dictate what happens to that money when the brother passes away.

Robert: Exactly. That is the perfect scenario, perfect pre-planning, because let's say you wait and let's say it's in sister's name and it all of a sudden goes to brother by inheritance, and then that person has a problem because if they're already on assistance, it's going to kick them over. Then if they're under like age 65, we could do a special needs trust for the disabled, but the state becomes a beneficiary of it, or we would have to protect it a different way like via a personal service contract. Now would be the time to take advantage of pre-planning and getting that done so then she wouldn't ever have to worry.

Tom: Okay. That's a special needs trust, Robert.

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