How Long Does a Special Needs Trust Last?

A special needs trust is an estate planning tool that allows an individual with a disability or functional need to receive financial support without adversely impacting their eligibility for means-tested government benefits, such as Medicaid and/or Supplemental Security Income (SSI). Once established, a special needs trust will continue until the primary beneficiary’s death, or if specific circumstances trigger the dissolution of the trust.

For example, a special needs trust may be terminated, even if the primary beneficiary is alive, when: (i) there is a change in law or eligibility for benefits; (ii) the primary beneficiary is able to engage in sustainable gainful activity to the point where they no longer meet disability criteria; and/or (iii) the special needs trust no longer holds funds sufficient to justify its administrative expenses.

If you need help establishing a special needs trust in SC or NC, or if you have other estate planning needs, contact Bespoke Estate Law. We would be happy to provide a complimentary consultation.

The Termination of a Special Needs Trust

When it comes to the termination of a special needs trust while the primary beneficiary is alive, federal regulations require the termination decision be made by someone other than the beneficiary and that terminating the special needs trust benefits no one other than the beneficiary. Specific circumstances may require that the trust continue to remain active, even if the beneficiary no longer receives, or is eligible for, government benefits. For example, if the primary beneficiary requires assistance in managing their finances, or wants to protect their assets from creditors, then the trust could continue to operate. If, on the other hand, terminating the special needs trust is determined to be the best decision, then final expenses, taxes and Medicaid liens will need to be satisfied before distributing the trust assets to the primary beneficiary.

The duration of a special needs trust may be impacted when the primary objective of a special needs trust has been achieved, the trust itself no longer serves the purpose it was created for, or the assets in the trust are no longer available due to a sudden change in market conditions. In these scenarios, termination of the trust may be the best option. As mentioned above, adherence to federal regulations is essential when terminating a special needs trust. Generally, the first step that needs to be taken is submitting a formal written termination notice to the trust's grantor and designated beneficiary, or beneficiaries. This written notice needs to contain sufficient detail about the termination, including the expected termination date and directives for the distribution of remaining trust assets.

Once a termination notice has been issued, it is recommended that you compile all of the trust's financial records. Why? Because you’ll need these records to create a final accounting statement. This statement should have an entry for each asset and the liabilities in the special needs trust at the time of closure. It is also important to ensure all taxes are paid before distributing funds or property held in the trust.

Types of Special Needs Trusts

There are three primary types of special needs trusts: first-party special needs trust, third-party special needs trusts, and pooled trusts. Selecting which type of special needs trust to create will depend primarily on your individual circumstances, funding sources, and the primary objectives of the trust.

First-Party Special Needs Trust

A first-party special needs trust is funded with assets belonging to the primary beneficiary (i.e., the individual with disabilities). The beneficiary’s assets could come in the form of an inheritance or from a personal injury settlement. Generally speaking, first-party special needs trusts are irrevocable, meaning they cannot be taken back once assets are transferred to the trust.

It is worth noting that, upon the death of the primary beneficiary, any remaining funds in a first-party special needs trust must be used to reimburse the government for medical care provided via Medicaid.

Third-Party Special Needs Trust

A third-party special needs trust is established by someone other than the primary beneficiary, typically a parent or other loved one. The assets in this type of trust are typically provided by the family member. A third-party special needs trust can be structured as either irrevocable or revocable.

In contrast to the first-party special needs trust, the assets in a third-party special needs trust are not subject to the Medicaid reimbursement requirement. Rather, any assets remaining in the third-party special needs trust upon the primary beneficiary's death can be passed to other family members or charities, in accordance with the directives of the trust.

Pooled Trust

A pooled trust is typically managed by a nonprofit organization and effectively combines resources from multiple beneficiaries. Nevertheless, each beneficiary would have a separate account created to manage their particular needs. A pooled trust must be structured as an irrevocable trust.

Upon the death of a beneficiary, funds in a pooled trust may stay within the trust to benefit other pool members.

Need Help Establishing or Managing a Special Needs Trust? Contact an Experienced Myrtle Beach Estate Planning Attorney Today

The rules and regulations governing Special Needs Trusts are complex and can be difficult to effectively navigate. This is where Bespoke Estate Law comes in. We are an established law firm specializing in comprehensive estate planning, business law, contract law, and probate & trust administration services. We proudly serve clients residing in Myrtle Beach and the surrounding localities.

Contact our experienced estate planning law firm today to schedule a free consultation. During the consultation, you will have the chance to speak directly with an attorney, and we will provide guidance on how we can assist you in protecting your assets, securing your legacy, and achieving your legal goals.