A special needs trust is a unique savings mechanism that can be greatly beneficial for a person with special needs. This type of trust allows families to save money to benefit their loved one with special needs in the future without endangering their eligibility for government benefits programs. The person with special needs can then use the proceeds of the special needs trust to help meet their future needs for housing, transportation, education, assistive devices, and more.
Special Needs Trusts Must Designate a Trustee
As with any type of trust, a special needs trust must have a designated trustee. In most cases, the parents of a person with special needs will act as trustees during their lifetimes. However, the parents must also designate a successor trustee, or a person to assume the responsibilities of a trustee after their deaths.
Various people can serve as a trustee of a special needs trust. A family member or close friend can serve as trustee of a special needs trust, but a professional, such as the trust department of a bank, an attorney, or a nonprofit organization may also serve as trustee in some cases.
Understanding Trustee Duties
Trustees of special needs trusts have fiduciary duties under state law to administer trusts, as well as specific tasks or duties that they must carry out as trustees.
The Fiduciary Duties of Trustees
Fiduciary duties ensure that trustees administer and manage the assets in a special need trust solely to benefit the named beneficiaries of the trust. Fiduciary duties include the following:
- The duty of care, or the responsibility to use reasonable care, skill, and diligence in managing and investing trust assets;
- The duty of prudence, or the duty to responsibly invest trust assets to protect and grow the assets in the trust, which may necessitate professional investment guidance; and
- The duty of loyalty under 760 ILCS 3/802, or the responsibility of the trustee to always act in a way that is in the best interests of the trust beneficiaries, not in their own interest or the interests of third parties.
Along with these fiduciary duties, the trustee has a duty to avoid any self-dealing or placing their own interests above those of the trust beneficiaries. The duty to avoid self-dealing requires trustees to refrain from:
- Commingling trust and personal assets;
- Borrowing money from the trust to benefit themselves or third parties;
- Selling trust assets to themselves;
- Allowing the trust to purchase goods or services from themselves (aside from trust administration services of a bank or similar entity) or their family members, even if the transaction is for fair market value.
Specific Duties that Trustees Must Complete
Some of the specific duties that trustees have when administering a special needs trust include the following:
- Completing annual accountings of all financial transactions involving trust assets to beneficiaries of the trust, and to the probate court in some instances;
- Reporting trust distributions to the Social Security Administration, when requested, if the beneficiary of the trust receives SSI benefits;
- Reporting trust distributions to Medicaid, which some states require;
- Reporting and obtaining permission for certain disbursements of funds from the special needs trust from the probate court as required;
- Approving and disapproving requested disbursements of funds by the beneficiary in accordance with the terms of the trust;
- Preparing income tax returns and paying any taxes owed, if necessary;
- Making changes to the trust if needed to maintain the eligibility of the beneficiary for government benefits programs, if needed;
- Winding down and dissolving the trust that terminates, such as upon the beneficiary’s death.
Obtaining Professional Services
Trustees can and often should rely on professionals to perform certain administrative or professional services necessary to administer the special needs trust. For instance, engaging an accountant may be necessary to prepare and file tax returns for the trust. Investment advisers are often crucial in protecting and growing trust assets. Lawyers also can handle legal matters that arise involving the trust and advise on how to make changes to the trust if needed.
Nonetheless, trustees must remember that delegating certain responsibilities to professionals does not diminish their potential liability for any wrongdoing or errors. Trustees remain responsible for their fiduciary and specific legal duties when administering a special needs trust.
Frequently Asked Questions
How does a special needs trust differ from other types of trusts?
A special needs trust is specifically designed to preserve a beneficiary’s eligibility for government benefits such as SSI or Medicaid. Unlike a standard trust, which may disqualify a person with disabilities from receiving these benefits if assets are distributed directly, a special needs trust ensures funds are used to enhance quality of life without replacing or interfering with public assistance programs.
What expenses can a special needs trust cover that government benefits typically do not?
Government programs often provide only basic support. A special needs trust can pay for supplemental needs such as:
- Specialized therapies or medical equipment not covered by insurance
- Educational programs or vocational training
- Travel and recreational activities
- Personal care attendants or home modifications
When should families consider setting up a special needs trust?
Families often establish a special needs trust when planning long-term financial security for a loved one with disabilities. Common triggers include:
- Receiving a large inheritance or settlement that could jeopardize benefits
- Estate planning by parents or guardians to ensure continuity of care after their passing
- Anticipating future costs for housing, transportation, or specialized services
Contact Us Today to Learn More About Our Legal Services
Rubin Law is the only Illinois law firm to dedicate itself exclusively to providing compassionate legal services for children and adults with special needs. We offer unique legal and future planning techniques to meet your family’s individual needs.
Call us today at 866-TO-RUBIN or email us at email@rubinlaw.com to learn more about the services we can offer you and your family.