Understanding a special needs trust

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Q. This is strange. My parents started a special needs trust for my daughter, but she doesn’t have any special needs, really. She was born without vision in one eye but she’s totally normal otherwise. What does the trust mean?
— Confused

A. Your parents are doing what they can to look out for their granddaughter.

At this time, because your daughter does not need any special government services and benefits available to disabled persons, the trustee of the trust, who is the person named to administer the trust, will merely make distributions pursuant to the terms of the trust as established by your parents, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

Romania said the distributions will be made presumably in the trustee’s discretion for the benefit of your daughter, notwithstanding that the trust may be called a special needs trust and notwithstanding that your daughter does not have special needs.

“A well-written trust should provide for various contingencies, one of which will certainly be that the beneficiary will either not qualify or no longer qualify as a special needs or disabled beneficiary,” Romania said.

She said the establishment of a special needs trust should be considered any time there is concern that a child, descendant or other beneficiary may be blind, disabled or otherwise qualify for government assistance — which can be in the form of special programs and is not necessarily monetary assistance — in the future.

“A special needs trust ensures that such beneficiary does not lose any potential government benefits,” she said. “The trust can be a testamentary trust, meaning it is created by the terms of someone’s Last Will and Testament and funded at the creator’s death, or it can be an intervivos trust, meaning it is a document separate and apart from a Last Will and Testament and can be funded by contributions during life or at death.”

Romania said the trustee will have broad discretion to determine when and how much to distribute to or on behalf of the special needs beneficiary, however, the trust funds will not be permitted to be utilized to pay support obligations.

Neither the beneficiary nor the beneficiary’s creditors can demand payment from a special needs trust, she said.

“The primary purpose of the trust is to supplement and not supplant any governmental services and benefits to which the beneficiary would otherwise be entitled,” Romania said.

Because it is a third party funded special needs trust, upon the beneficiary’s death, any funds remaining in the trust will not be used to reimburse the government for benefits the beneficiary may have received during lifetime, she said.

“If the trust was created on behalf of the beneficiary with funds belonging to the beneficiary, for example from a personal injury award, the rules are different, and reimbursement of government benefits is required,” Romania said.

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NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.