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Key Factors to Consider When Creating a Special Needs Trust

Every trust is comprised of an agreement between two people – a grantor who is donating funds to the trust, and a trustee who manages the donated funds as outlined by the grantor in the trust document.  The funds in a trust are typically used to assist the trust beneficiary.  This beneficiary is usually either a person or group.  Understanding trusts can be complicated. However, simply put, a special needs trust is established for the benefit of someone with special needs.

For the most part, special needs trusts fall into three categories:

  1. First-party. First-party trusts are funded with the disabled beneficiary’s own funds.
  2. Third-party. Third-party trusts are created by someone else, typically a parent or grandparent for the benefit of a child or grandchild.
  3. Pooled disability trusts. Pooled disability trusts are run by a non-profit organization.

Each type of trust has its own benefits and drawbacks.  For this reason, the grantor needs to consult with a special needs planning attorney before funding any of these trusts.  The attorney will be able to outline each trust, the terms for governing what the trust funds may be used for, what funds should go in the trust and what will happen to the excess funds upon the death of the primary beneficiary.

One of the most difficult decisions for the grantor, if not the most difficult, is who to designate as the trustee of the special needs trust.  A trustee of any type of trust has great responsibilities, however, the trustee of a special needs trust has to be extra careful when making distributions from the trust so that the beneficiary does not lose their eligibility for public benefits, such as Supplementary Security Income (SSI), Medicaid and subsidized housing.

Most grantors chose to appoint a family member as trustee, thinking that a family member will act in the best interest of their loved one and has an understanding of the beneficiary’s special needs unlike anyone else.  However, when choosing a family member, you should consider whether or not this person has the time, skill and lack of self-interest to act as a trustee.

A viable alternative to a family member or close friend would be a professional trustee.  Examples of professional trustees would be a bank, trust company, or law firm.  These people would have the necessary skill set and experience, however, may lack experience with working with individuals with special needs and can be impersonal.  Professional trustees also charge a fee for their services.  For larger trusts, the fees are quite reasonable given the services provided.  However, for smaller trust funds, a minimum annual fee charged by the professional trustees can be quite pricey in comparison.

As you can see, there are many factors to consider before creating a special needs trust.  By contacting a knowledgeable special needs planning attorney, you can ensure the future of your loved one is protected.

Marissa Kleiner
Russo Law Group, P.C.
100 Quentin Roosevelt Blvd., Suite 102
Garden City, NY 11530

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