Special Needs Trusts (SNTs)

Personal injury settlements should be placed in a first party SNT. Family savings, inheritances and other financial gifts should be placed in third party SNTs. The funds can then be invested in stocks and bonds for growth and protection from inflation.

Ultimately, there are a number of strategies parents and families should consider:

• Insurance – Consider various scenarios in order to sort through the many options.
  • Term life insurance can be a relatively inexpensive path to funding the SNT. Assuming no significant changes in one’s health, they can be renewed upon expiration, although age and medical conditions often mean steeper premiums.
  • Whole life insurance, on the other hand, covers the entire life span and part of each premium is collected in an investment account that grows in value. Premiums are fixed.
• Real Estate

Leaving a house in the child’s name can be a big mistake, because it will affect means-tested benefits. Also, it may leave the individual open to exploitation. Therefore, leaving real estate to a third party SNT is the most effective funding tactic. Moreover, the property can receive rental income, which is an ideal investment income to the trust.

• Retirement Plans

Designating an SNT as the recipient of retirement plans is tricky because if funds are distributed to the trust’s beneficiary and taxed during the year of transfer, the individual could not only incur unnecessary high taxes, but also be disqualified for government benefits and. Note: families are sometimes advised to avoid designating an SNT as the beneficiary of a retirement fund. Instead, they’re encouraged to decumulate the retirement account and use the funds to purchase life insurance for the SNT or even leave the retirement funds to other heirs.

ABLE Account

• Contributions to an individual’s ABLE account may be made by any “person.” A person is defined as an individual, trust, estate, partnership, association, company, or corporation.
• There are no limits to how many SNTs an individual may have or to how much each trust may hold. On the other hand, an individual may have only one ABLE account, and total annual contributions are pegged to the annual federal annual gift tax exclusion, currently $15,000.
• Any amount over $100,000 in an ABLE account counts towards the individual’s $2,000 resource limit for SSI and Medicaid eligibility, and causes the individual’s SSI payments to be suspended until the account balance decreases to less than $100,000. 
• Each state’s ABLE program designates investment options available to account holders. Changes may be made no more than twice annually.