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The Estate Planning Guide for Special Needs Trust Formation

In 2015, the U.S. Congress passed S.349 – Special Needs Trust Fairness Act, allowing disabled persons to plan their own estates without the assistance of a family member or other guardian. The Act has resolved some of the complex issues associated with trust formation, and now informs the estate planning process coinciding with execution of trust assets in the interest of disabled beneficiaries. An estate planning attorney will advise a family of the proper legal process for developing an estate plan that includes a disabled beneficiary to ensure that the loved one’s special needs are supported after the decedent has passed. The following are recommended steps to planning an estate for a trust holder or beneficiary with special needs:

The Estate Planning Guide for SNTs

  •         Trust Formation. A Supplemental Needs Trust (“SNT”) is a trust designated exclusively for the benefit of a disabled family member or named beneficiary. The SNT allows family members and friends contribute to trust assets through payment for good or services. SNT beneficiaries remain eligibility for government assistance programs as well.  
  •         “d4a” & “d4c” Exempt Trusts.  A person with a disability may already have a trust in their own name if they have earned at some point in their lifetime. Exempt “d4a” or “d4c” trusts are another form of SNT that can be funded from existing funds belonging to an eligible person. Funds belonging to the person with a disability kept separate from third-party funds, protect the “d4a” or “d4c” eligible trust from state attachment at time of death.
  •         Power of Attorney. Estate planning documents providing Powers of Attorney and Trusts are important to execution and administration of trust assets on behalf of all beneficiaries, including those with disabilities.
  •         Trustee Duty. Designation of an authorized trustee with the responsibility of executing all designated government benefits or trust assets inherited by a beneficiary is essential. An estate executor has the duty to a reasonable standard of professional care in assuring that the expenditure of trust funds is attributed to the proper third-party caregivers providing services in exchange for those assigned funds.
  •         Avoid Probate. The ideal estate plan will enable beneficiaries to avoid probate court. If a disabled beneficiary is part of an estate’s trustee obligation, an effort should be made to minimize the responsibilities associated with court-appointed guardians or trustees after the decedent of the trust has passed. Probate litigation is time consuming, confusing, and can stand in the way of a disabled family member’s care.
  •         Fund the SNT. Distribution of assets on behalf of a beneficiary with a disability is easiest if trust assets are vested and have a record of valuation before gift or transfer. Reduce the risk of inheritance tax on assets by arranging a fully funded SNT exempt from taxation. Non-retirement plan assets are the best bet for SNT, as there are generally rules associated with transfer and distribution of retirement fund assets such as hedge funds securities.   
  •         Diversion of gifts, bequest, or inheritances. If other family member expresses a wish to divert bequests to an existing SNT, there is reduced risk that a beneficiary will sustain loss of eligibility for government benefits, or other inheritance. Review of existing family trusts, such as life insurance benefits or trust gifts that would be distributed directly to the beneficiary with a disability, can impact the SNT distribution process latter.  
  •         Letter of Intent. Trustees, advocates, guardians, and caretakers involved in the disabled family member’s care, will be important to making estate planning decisions where ongoing economic support is required. Although not a legal document of estate execution, a letter of intent addressing parties substantially involved with the caretaking of a family member who has a disability, will serve to protect a loved one’s interests into the future.

Estate Planning New York

A licensed attorney will be able to assist a client to determine if an exempt trust is suitable for a family member with special needs. Ettinger Law Firm is a licensed attorney practice in New York providing estate planning consultation and probate litigation services. Contact Ettinger Law Firm in New York for information about setting up a family trust.  

See Related Blog Posts:

Back to the Basics – Special Needs Trusts

Ensuring Your Special Needs Trust Stays a Special Needs Trust

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