Things you need to know about special needs trusts

May 28, 2020

Estate plans are not “off the shelf” products. Every will or trust should be individually tailored to meet the circumstances of the person and his/her goals for the disposition of their assets. There are several different kinds of trusts that can be used to save taxes, protect spendthrifts, take care of minors, etc.  For individuals with disabilities receiving government assistance, there are Special Needs Trusts drafted to safeguard those government benefits and, at the same time, allow for an inheritance or gift that can provide some extra funds to supplement that disability income.

Distribution requirements

The most important thing about a Special Needs Trust is the language that allows for the distribution of funds from the trust. At NO time should the beneficiary of the trust be given any right to or be entitled to the income or principal of the trust. If he/she has those rights, they are incidents of ownership that may jeopardize the government benefits they are receiving. The trustee(s) must be given the sole discretion to distribute any principal or income to the beneficiary and only for the standards allowed.

Standard reasons to distribute funds

Some examples of standards that might be given for the distribution of funds are items for care and comfort that their current income would not allow for; money for a vacation, funds to obtain and care for a service animal or pet, money for companion care, etc.  

How funds are distributed

Whenever possible, funds from the trust should be paid directly to the provider and not be given to the beneficiary. If funds are given to a beneficiary, they should only be for reimbursement of items that would conform to the standards of the trust and be documented by receipts showing the expenses and what those expenses were for. 

When to create a special needs trust

These trusts can be established during a lifetime and funded with gifts, or by an inheritance at the time of death. If they are not in existence during the lifetime of the decedent donor, they can be created in the will or trust of the decedent donor. There are post-mortem ways to create a Special Needs Trust but those can be more complicated and challenging to accomplish.

First National Bank and Trust has expertise in administering Special Needs Trusts. If you have a family member or loved one who is receiving government assistance because of a disability and would benefit from a Special Needs Trust, please reach out to us as you work with your attorney to draft this document.

Contact us at 217-935-2148 about any of your current retirement, estate planning or investment needs and we will be happy to answer them to keep you and your family on the path to generational prosperity.

Investment products and services available through First National Bank and Trust are:  Not FDIC Insured, Not Insured by any Federal Government Agency, Not a Deposit, Not guaranteed by the bank, May lose value.

Matt Riley was named Fiduciary Officer and VP for First National Bank and Trust Company in December 2018, helping clients to meet their prosperity goals through investment and estate planning. Prior to joining FNBT, Matt had risk and compliance analysis experience at State Farm Bank in Bloomington, Ill. Matt is a proud Illinois State University Alumni, receiving his B.S. in Finance with an emphasis in Financial Planning. He has continued his education journey, earning other designations including the Chartered Financial Consultant designation. In addition to his bank service, Matt became a member of the Clinton Rotary Club in April of 2019 and became a board member for the Warner Hospital & Health Services Foundation in May of 2019.