Trust,theSPECIALNEEDSTRUST.ASpecialNeedsTrust(SNT)alsoknownasaSupplemental
NeedsTrust,isanestateplanningtoolthatallowsGrantors(thoseopeningtheTrust)formi
norsordisabledpersons(Trustor)tomaintainhisorhereligibilityforpublicassistancebene
fits,despitehavingassetsthatwouldotherwisemakethepersonineligibleforthosebenefit
s.
TherearetwotypesofSNTs:FirstPartyandThirdPartyfunded(DHCS,2021).FirstPartyfun
dedmeansthattheTrustisstartedandinitiallyfundedbymoniesalreadyownedthebenefi
ciary,ThirdPartyfundedarewhentheinitialcontributionsforthecreationoftheTrustcom
esfromanyoneotherthanthebeneficiarythemselves(SNA,2023).ThistrustisaQUALIFIED
DISABILITYTRUST,whoseformfallsundertheirrevocable“familytrust”lineandis“complex
”initsformationforincometaxpurposes(Andersonetal.,2023).Thetrustitselfisresponsi
bleforreportingitsownitemsofincome,deduction,andcredit.Andaswehavealreadylear
nedatrustthatdoesnotrequiredistributionofallitsincomebythetermsofthetrustagree
mentiscalleda“Complex”Trust.
A“QualifiedDisabilityTrust”or“QDT”isallowedthesameexemptionasanindividualunder
IRS Code §642(b)(2)(C). There are many advantages to having a SNT, it eliminates many pro
blemsonehaswhencaringlong-
termfordisabledlovedones.Onemajorproblemthatitsolvesisthatrelievesonefromthe
overwhelmingpressureparents/grandparentsfacewhentheyarethinkingofhowtheirspe
cialneedslovedoneswillcarryoninlifeoncetheyarenolongertheretooverseeandprovid
eforthem.
BystartingaSNT,assetslefttothedisableddescendantwillbemanagedbyaGrantorchose
nTrustee,canbeinvestedtoearnadditionalincometocontinuetogrowandprovidebeyon
dtheinitialinheritance,andstillallowtheTrustortobenefitfrommeanbasedsocialprogra
msthatcanhelpbridgetheirfinancialgapduetotheirgreater(andgrowing)medicalneeds.
InmanyofthesecasestheGrantors(parents/grandparents)aretheonlyconsistenthelpers
andguardiansintheTrustors(child/inheritors)lives,sotrustingstrangerswiththetasktota
kecareofthemaswellastheywouldthemselvesisalwaysaconcern.
ButwithaSNT,atrustedTrusteeissetoverthefundstheywanttoleavetotheirlovedones
andinmanycasestheTrusteeisusuallyanotherabledbodiedinheritorandrelativeoftheTr
ustee.ASpecialNeedsTrustisalsoveryflexibleandadvantageousintheareasanditemstha
titcoversfortheTrustee.ContinuingEducation,Vacations,vehicles,andallthingsmedical
arejustafewthingsapprovedforuseunderaSNT.Unfortunately,allTrustshavetheirdown
sides.Onemajordisadvantage(pitfall)thatconfusesmanyTrustees,causingthemtounkno
winglycommitserioustroublestothelifeoftheTrust(entity)andTrustorisfoundinthehan
dlingofbothnewcontributionsandmethodsofdistributions.
ASNTisallowedtoearnincomebutinmoststatestheincomeiscappedatbothatimeanda
mountearningsbase,meaningthereisalimittoincomeearnedbytheTrustbothmonthlya
ndintotality.IntheCommonwealthofVirginia,thelimitisbasedonboththeincomeandth
emedicalexpenses.InVAaSNThasamonthlyincomecapamountof$800.Whereasthetot
alTrustlimitis$500,000.00(exceptforintheTrustinitialyear)(TheArc,2022).
TheTrusteemustbecarefulaboutnotdisqualifyingthebeneficiaryforpublicbenefitsbygiv
ingthemtoomuchmoney,bymakingtoomuchmoney,orbygivingmoneydirectlytothebe
neficiary.GoodtrainingandinstructionsmustbegiventotheTrusteetobeabletofollow/d
eterminethefiscal,medical,andpersonalneeds(notwants)oftheTrustorare,andoftenth
atisnotdoneintrustslikethese(Singer&Stern,2023).Becauseofthenatureinrelationshi
pbetweentheTrusteeandTrustor(thereluctancetosaynotounauthorizedillegalTrustdis
tributionstolovedone),thelackofAdministrativeTrusteetraining(unknownrepetitiveacc
ounting/taxerrors),andmisusedofbothnewcontributionsanddistributions(actsofembez
zlementduetofamiliaritytoTrustorsmentalandphysicallimitations)(SNA,2023).
References:
Anderson,K.E.,Pope,T.R.&Rupert,T.J.(2023)Taxation2023Corporations,Partnerships,
Estates&TrustsPearson.(Chptr14–IncomeTaxationofTrustandEstates)
FilingATaxReturnforaSpecialNeedsTrust(March2021)SNA–SpecialNeedsAlliance–
THEVOICEVol.15,Issue4RetrievedMay11,2023.
https://www.specialneedsalliance.org/the-voice/filing-a-tax-return-for-a-special-
needs-trustwhat-a-trustee-needs-to-know-at-tax-time
IRSCode§642(b)(2)(C)
Singer,S.,&Stern,P.S.(2023)SpecialNeedsTrusts–SNT–SupplementalNeedsTrusts.The
AmericanCollegeofTrustandEstateCounsel.ACTEC.RetrievedMay11,2023.https:
//www.actec.org/estate-planning/special-needs-trusts-snt/
SpecialNeedsTrust(2021)DepartmentofHealthCareServices–
DHCS CA.gov Retrieved May
11,2023.https://www.dhcs.ca.gov/services/Pages/Special-Needs-
Trust.aspx#:~:text=A%20Special%20Needs%20Trust%20(SNT,Party%20and%20Thir
d%20Party%20funded.
TheArc–ComparingSpecialNeedsTrustsandtheVA-ABLE(September21,2022)
https://thearcofnova.org/wp-content/uploads/sites/6/2021/01/SNT-vs-VA-ABLE-
09.21.22.pdf
