A Special Needs Trust (SNT) offers an invaluable way to provide for a loved one with disabilities without jeopardizing their eligibility for essential government benefits, such as Supplemental Security Income (SSI) and Medicaid. These benefits typically only cover basic needs—such as food, shelter, and medical costs—leaving many other expenses unmet. SNT funds can be used to enhance the quality of life for the beneficiary by covering things that aren't included in government assistance programs.

However, there are rules to follow when utilizing SNT funds. A trustee must ensure that expenditures are allowed, as any unauthorized usage can result in penalties or a reduction in government benefits. This means it's crucial to fully understand what SNT funds can and cannot pay for while still making life more enjoyable and fulfilling for the beneficiary.

How SNTs Work: First-Party vs. Third-Party Trusts

Special Needs Trusts come in two primary forms: first-party and third-party. The main difference between these types of trusts is in who funds them and the way the assets are treated.

• First-Party SNT: This trust holds funds that are owned by the beneficiary or that they have received, typically as a lump sum, such as from an inheritance, settlement, or lawsuit award. These funds are placed into the trust to preserve the beneficiary's eligibility for government benefits.

• Third-Party SNT: This trust is funded by someone other than the beneficiary, such as a parent, grandparent, or other family member or individual. The assets in a third-party trust are not considered the property of the beneficiary, and importantly, any remaining funds upon the beneficiary’s death do not need to be reimbursed to the state for the amount of benefits received. This provides greater flexibility for the trust to distribute remaining funds to other family members or even charities.

While both types of SNTs can hold various assets, such as cash, investments, life insurance policies, retirement accounts, and even real estate, it's important to carefully consider which type of SNT is best suited for your needs and goals.

For more information about setting up an SNT and choosing the right type, please visit Wiszneauckas Law Estate Planning and Intellectual Property.

What Can SNT Funds Be Used For?

The primary rule governing SNT funds is that they are meant to supplement—not replace—government benefits. They can cover a wide variety of expenses, provided those expenses aren’t already covered by programs like SSI and Medicaid. SNTs are intended to enhance the beneficiary’s life without interfering with their eligibility for benefits.

Here are some categories of expenses that SNT funds can be used for:

1. Medical and Dental Expenses

While Medicaid covers a wide range of medical needs, there are gaps in coverage, such as certain elective surgeries, over-the-counter medications, and specialist consultations. An SNT can also help pay for dental and vision care, hearing aids, and private rooms in care facilities, which may not be covered by Medicaid. Learn more about how we can assist

2. Educational Costs

SNT funds can be used to support the beneficiary’s education and skill-building. Tuition for special needs schools, books, tutoring, or even extracurricular activities that help build skills and independence can be paid for by the trust.

3. Recreational and Social Activities

SNT funds are also ideal for enhancing the beneficiary's social life. They can be used for memberships, sports lessons, fitness equipment, travel, and entertainment such as movies, concerts, or theater tickets. These experiences enrich the beneficiary’s life, providing opportunities for personal growth and enjoyment that SSI and Medicaid simply don’t cover.

4. Technology and Electronics

An SNT can be used to purchase devices that help the beneficiary stay connected or engage in their personal interests. This includes computers, smartphones, tablets, or even assistive technology to aid in communication or mobility. Additionally, internet services or mobile phone plans can also be paid for by the trust, ensuring that your loved one has access to the digital world, which is becoming more essential by the day.

5. Adaptive Equipment

For beneficiaries with mobility challenges, an SNT can be used to purchase adaptive recreational equipment such as modified bikes, wheelchairs, or modified vehicles. This allows them to participate in outdoor activities and maintain a level of independence.

6. Personal Care and Wellness

SNT funds can cover non-traditional medical expenses, such as aromatherapy, reiki, massage therapy, and spa treatments. These therapies, while not typically covered by Medicaid, can greatly improve the quality of life by enhancing physical and mental wellness.

7. Pets and Pet Care

Pets have been shown to reduce stress, anxiety, and depression, making them a valuable source of comfort and companionship. An SNT can cover expenses related to pet adoption, veterinary care, food, grooming, pet toys, and even pet training. This can provide emotional support and companionship to the beneficiary, improving their mental health and overall well-being.

8. Home Furnishings and Household Items

While an SNT cannot be used to pay for basic housing expenses, it can cover the cost of items that improve a home’s comfort and aesthetics. Furniture, decor, home appliances, and electronics can all be purchased through the trust to enhance the beneficiary’s living environment.

9. Transportation

A vehicle, along with associated costs such as insurance, maintenance, and fuel, can be purchased for the beneficiary through the SNT. This provides them with a level of independence and mobility, enabling them to travel to appointments, social engagements, or other essential activities.

10. Celebrations and Special Occasions

An SNT can also be used to fund special celebrations, such as birthdays, holidays, or anniversaries, as well as any social gatherings that promote a sense of community and belonging. These experiences can create lasting memories and allow the beneficiary to feel part of family or cultural traditions.

For further details on how to properly structure an SNT to enhance your loved one’s life, consult with an estate planning attorney at Wiszneauckas Law.

Creative Ways to Use Third-Party SNT Funds

Trustees managing third-party SNT funds have considerable flexibility in how they spend the trust’s assets, as long as they adhere to the rules that protect the beneficiary’s government benefits. Here are some creative ideas to consider:

1. Vacations and Travel

A well-planned vacation can provide a change of scenery and help your loved one create cherished memories. Airfare, hotel accommodations, cruises, and other travel-related expenses are allowable purchases under an SNT.

2. Support for Hobbies and Interests

Whether your loved one enjoys photography, painting, music, or any other creative pursuit, an SNT can help cover costs for supplies, equipment, classes, and memberships. This fosters personal growth and enhances their sense of accomplishment.

3. Fitness and Recreation

An SNT can pay for memberships to gyms, fitness classes, or camps designed to support physical and mental wellness. Adaptive recreational equipment like specialized bikes or outdoor gear can also be purchased to encourage outdoor activities and healthy living.

4. Technology and Media Subscriptions

To help your loved one stay connected and engaged, an SNT can cover costs for streaming services, digital media, or subscriptions to educational apps and software. These can enhance their cognitive development and entertainment options.

The Role of Trustees in Managing SNT Funds

Trustees play a crucial role in the management of SNT funds. Their primary responsibility is to ensure that the funds are used properly and in the best interests of the beneficiary, all while protecting the beneficiary’s eligibility for government benefits like SSI and Medicaid. A trustee must balance the short-term needs of the beneficiary with their long-term goals, making sure to provide the necessary support without jeopardizing access to these vital benefits.

The trustee’s first responsibility is to understand the rules governing Special Needs Trusts (SNTs). They must ensure that SNT funds are spent in accordance with the guidelines that are designed to enhance the beneficiary's quality of life, without violating the conditions that could cause a reduction or loss of benefits. This includes ensuring that funds are used for special needs that are not covered by government programs, such as education, travel, technology, or adaptive equipment.

A trustee must also maintain detailed and accurate records of all transactions. This includes making purchases in the name of the trust, rather than in the beneficiary’s name, to prevent these transactions from being counted as personal income. It’s important that the trustee avoids making direct payments to the beneficiary, as these could result in unearned income that might disqualify them from receiving government benefits.

Additionally, a trustee should be aware of the ongoing responsibility to review and adjust the trust as circumstances change. This is particularly important when considering long-term care needs, Medicaid eligibility, or insurance requirements. Trustees should be well-versed in estate planning and may even need to consult with an estate planning lawyer to ensure compliance with all applicable laws and regulations. For assistance with trust management, visit Wiszneauckas Law Estate Planning and Intellectual Property or schedule a consultation with our experts.

Finally, trustees must act cautiously to avoid violations that could lead to penalties, including the loss of essential benefits. The trustee must always keep the beneficiary’s best interests at the forefront of every decision.

Need Help?

If you are considering setting up an SNT or need assistance managing one, consult with Wiszneauckas Law Estate Planning to ensure that everything is handled correctly. Our attorneys can assist you with setting up the trust, advising on appropriate purchases, and ensuring compliance with all relevant laws.