Special Needs Trusts by SextonLawAR

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Learn how you can provide future care for your special needs loved one through the creation of a special needs trust. http://www.arkansas-estateplanning.com/services/planning-for-those-with-special-needs/

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									SPECIAL NEEDS
   TRUSTS
  Learn How You Can Provide Future Care
 for Your Special Needs Loved One Through
       Creating a Special Needs Trust




           DEBORAH SEXTON
       ARKANSAS ESTATE PLANNING ATTORNEY
       A Special Needs Trust is a particular type of trust meant just
       for that purpose – providing future care for someone who is
       disabled.

       A trust is an estate planning tool that allows you to set aside money and other
       assets for a beneficiary for a particular purpose. The trustee you select to hold
       and manage that property will be responsible for making certain that the terms of
       the trust are fulfilled. Trusts are a vital tool in estate planning. This is especially
       true when the future needs of a disabled individual are at issue.

       A Special Needs Trust is a particular type of trust meant just for that purpose –
       providing future care for someone who is disabled. When the caregiver of a
       disabled individual is no longer capable of caring for that person, the trust will
       provide the assets necessary to continue care. A Special Needs Trust is
       irrevocable (cannot be canceled) and the assets in the trust are protected from
       lawsuits and creditors. A Special Needs Trust also protects the funds so they do
       not count as financial assets for eligibility purposes when applying for
       government benefits.

       TWO BASIC TYPES OF SPECIAL NEEDS TRUSTS
                                                   There are two types of Special Needs
                                                   Trusts. A General Support Special Needs
                                                   Trust is seen as the primary source of
                                                   benefits for the disabled. A
                                                   Supplemental Care Special Needs Trust,
                                                   which is the most common type, is a
                                                   secondary source of benefits after
       government benefits are exhausted.




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       “Special needs” is a comprehensive term that includes medical and health-care
       services as well as a wide variety of related services that increase the beneficiary’s
       “quality of life.” All of these options can be tailored to the needs and
       circumstances of each intended beneficiary. When the beneficiary’s medical
       needs are provided for, the Special Needs Trust can also provide additional
       services, such as assistance with
       daily living activities. Providing
       respite care for the primary
       caregiver is also an important
       consideration. The trust assets
       can pay for living arrangements or
       renovations needed to the
       beneficiary’s home.

       Determining the appropriate type
       of Special Needs Trust requires
       consideration of many factors
       such as to whom the assets belong
       and whether they are likely to
       cover the full cost of support and
       care for the beneficiary. If the
       assets and resources will likely be sufficient, then a General Support Special
       Needs Trust may be the right choice. Otherwise, if need-based government
       programs will play a critical role in funding the beneficiary’s care, then a
       Supplemental Care Special Needs Trust may be the appropriate solution.




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       HOW IS A SPECIAL NEEDS TRUST ESTABLISHED?
       A Special Needs Trust can be created during the lifetime of the caregiver or
       through a last will and testament. The trust becomes effective when it is signed
       and notarized. A tax identification number must be obtained from the IRS and




       then a bank account will be opened with a minimum deposit. At that point the
       trust can be funded through a variety of methods.

       Usually, the grantor (the person executing the trust document) names himself or
       herself as trustee. Another person should also be named as the successor trustee
       to take over the trust if the initial trustee dies, becomes incapacitated or resigns.
       Anyone who acts as the trustee is legally bound to follow the terms of the trust
       document and use the property only for the benefit of the person with special
       needs, as identified in the terms of the trust.




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       HOW IS A SPECIAL NEEDS TRUST FUNDED?
       A Special Needs Trust can be funded either by a parent, relative or other third-
       party or it can be funded with the beneficiary’s own assets, which is known as a
       “self-settled” Special Needs Trust. In the case of a self-settled Special Needs
       Trust, federal law requires that the trust reimburse Medicaid when the
                                                           beneficiary dies. The
                                                           reimbursement would come
                                                           from whatever property remains
                                                           in the trust. Federal law has a
                                                           few additional requirements for
                                                           a self-settled Special Needs
                                                           Trust. First, the beneficiary
                                                           must be “disabled” as defined by
                                                           the Social Security Act, that is,
       “unable to engage in any substantial gainful activity as a result of his or her
       disability.” The beneficiary must also be under age 65 when the Special Needs
       Trust is established and funded with the beneficiary’s assets.

       If the person is over age 65, however, only a “pooled” Special Needs Trust is
       available for a self-settled trust. A pooled Special Needs Trust is created through
       a non-profit organization, where the funds of several beneficiaries are pooled
       together. Those joint funds are then managed and invested on behalf of the
       beneficiaries by the non-profit organization. Any money left in the trust when the
       beneficiary dies is used to help others with disabilities.

       A “third-party” Special Needs Trust (funded with assets from others) is not
       subject to the Medicaid payback requirement. All property remaining when the
       beneficiary dies may be distributed in the manner directed by the terms of the



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       trust. Another advantage of a third-party Special Needs Trust is that there is no
       age limitation or specific disability required.

       ADMINISTERING THE TRUST
       After the trust is funded, the trustee becomes responsible for using the funds
       from the trust to support the beneficiary, while protecting eligibility for necessary
       government benefits. The trustee is also expected to pay taxes, keep all necessary
       records of transactions and keep up with the beneficiary’s needs.

       Although practically any type of property can be held in the trust (i.e., real estate,
                                                      stocks, jewelry) cash is what is needed
                                                      to pay for items that aren’t provided by
                                                      SSI or Medicaid. Therefore, a Special
                                                      Needs Trusts will generally authorize
                                                      the trustee to sell tangible items in
                                                      order to raise cash. Also, since the
                                                      purpose of a Special Needs Trust is to
                                                      improve the beneficiary’s quality of
                                                      life, the types of products and services
       that can be paid for out of the trust funds are very broad. In fact, nearly anything
       that is neither illegal nor contrary to the terms of the trust are allowed.

       As with most trusts, the Special Needs Trust is terminated when its purpose has
       been served and it is no longer needed. If the funds run out, the beneficiary is no
       longer eligible for or no longer needs government benefits or if the beneficiary
       dies, the Special Needs Trust will be terminated.




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       About the Author
       Deborah K. Sexton
                                   As the sole attorney in the Fayetteville law firm of
                                   Deborah Sexton Law Office, Deb oversees a practice
                                   devoted to providing clients with the best in estate
                                   planning.


                                   Deborah Sexton, C.P.A., J.D., L.L.M., combines an
                                   extensive background in accounting with a wide range
                                   of legal experience to provide her clients with a
                                   uniquely practical perspective. An attorney since 1983,
                                   she now devotes her practice primarily to estate
                                   planning and elder law.


       EXPERIENCE
       After obtaining her undergraduate degree in accounting from Abilene Christian
       University in Abilene, Texas, she worked in Dallas in public accounting for
       several years, and then went to the University of Arkansas Law School in
       Fayetteville. Upon graduating from law school, she went on to obtain an L.L.M.
       degree in Taxation from New York University.

       Deborah Sexton Law Office
       www.arkansas-estateplanning.com

       2766 Millennium Drive
       Fayetteville, AR 72703
       Phone: (479) 443-0062
       Fax: (479) 443-2001




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