How to Fund a Special Needs Trust and How the Money May Be Spent

Many different types of resources can be used to fund a Special Needs Trust. They may include your family’s savings, investments in stocks and mutual funds, Certificates of Deposit (CDs), military benefits, Individual Retirement Accounts (IRAs), real property and standard government benefits. Parents and other family members and even friends can name the trust as a beneficiary in their wills. Your life insurance policy can also name the trust as a beneficiary. Anyone can contribute to the trust at any time. If the trust beneficiary (the special needs individual) inherits money or other property, that can be placed in the trust as well.

Special Needs Trust Funds May Not Be Use for Basic Needs

There are strict rules regarding the wording of Special Needs Trusts that have to do with how the money may and may not be spent. The document must designate that the money cannot be used to pay for the beneficiary’s basic needs, such as housing, medical treatments covered by Medicaid, food or clothing. Money used for those purposes are considered “income” for the intention of determining the beneficiary’s eligibility to receive Supplemental Security Income (SSI) and Medicaid. It must also state that the money cannot be used to pay for any item that is, or in the future may be, covered by SSI or Medicaid and that any expenditure that would jeopardize the beneficiary’s eligibility for SSI or Medicaid are not authorized.

Allowable Purchases Using Trust Funds

The money canbe used to purchase a home, (which can then be rented to the beneficiary). The trust can pay for ordinary or special furniture, medical and health costs not covered by Medicaid, such as experimental and alternative medical treatments, massage therapy, vitamins, certain durable medical equipment and special aids. It can pay for vacations, summer camp, trips, travel companions, or other recreation or entertainment. It can be used to buy sporting equipment or fund hobbies of any kind. The trust can pay for computers, haircuts, tickets to a ball game, or a camera. The special needs individual can buy bowling shoes with this money, but not regular shoes, because that is “clothing” and is paid for by SSI. The trust can also be used to pay for emergency legal costs in the event that the beneficiary is sued, charged with a crime or needs an advocate to deal with government or medical red tape. It can also pay for the beneficiary’s funeral and burial expenses.

Prohibitions on Certain Expenditures and Special Items

The grantor (the person who sets up the trust) can designate specifically anything that he or she wants the trust to pay for, and can also specify things for which the money should not be used, like perhaps cigarettes. The grantor may also spell out any items unique to the beneficiary that he or she wants to make sure are provided. For example, if the beneficiary loves animals, the grantor can specify that the trust should pay for a monthly trip to the zoo. As long as they are allowable items, which will not jeopardize eligibility for government benefits, the grantor may give the trustee full discretion to spend the money how he or she sees fit to benefit the special needs individual and allow him or her to have a good life.

For more information about Special Needs Trusts, check out the following articles:

• Special Needs Trusts
• Types of Special Needs Trusts and Who Can Set Them Up
• Who Should Have a Special Needs Trust
• How to Create a Special Needs Trust and What to Include In It
• Special Needs Trusts and Eligibility for Federal and State Assistance

Case Studies on Funding and Utilization of Special Needs Trusts

Case Study 1: Funding a Special Needs Trust With Family Savings and Investments

A family establishes a Special Needs Trust for their loved one with special needs. They fund the trust using their savings and investments, such as stocks, mutual funds, and Certificates of Deposit (CDs).

The trust becomes a beneficiary in their wills, and they also designate their life insurance policy to benefit the trust. Additionally, they allow contributions from other family members and friends.

This explores how these funding sources are utilized to support the beneficiary’s unique needs while maintaining eligibility for government benefits.

Case Study 2: Utilizing Special Needs Trust Funds for Medical and Health Costs

This focuses on the permissible uses of Special Needs Trust funds for medical and health-related expenses not covered by Medicaid.

It examines a scenario where the trust pays for various medical treatments, including experimental and alternative therapies, massage therapy, vitamins, durable medical equipment, and special aids.

This highlights the importance of distinguishing between allowable medical expenses and basic needs covered by government benefits to maximize the beneficiary’s quality of life.

Case Study 3: Enhancing Quality of Life Through Recreational and Entertainment Expenses

The trust funds are used to enhance the beneficiary’s recreational and entertainment experiences. It explores how the trust can cover expenses for vacations, summer camps, trips, travel companions, and other recreational activities.

It also examines how the trust can support the beneficiary’s hobbies, such as purchasing sporting equipment or funding specialized interests. This emphasizes the importance of aligning the expenditures with the beneficiary’s unique preferences and interests.

Case Study 4: Addressing Legal and End-of-Life Matters

This delves into the role of the Special Needs Trust in handling legal and end-of-life matters for the beneficiary.

It explores how the trust can be utilized to cover emergency legal costs, such as legal representation in lawsuits or criminal charges, as well as navigating bureaucratic processes related to government or medical issues.

Furthermore, the case study discusses the trust’s ability to provide for funeral and burial expenses, ensuring that the beneficiary’s end-of-life arrangements are appropriately handled.