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Understanding the modern special needs trust

On Behalf of | Dec 29, 2022 | Firm News |

Special needs trusts (SNTs) have been a feature of informed estate planning in Florida for almost 20 years. During this period, attorneys have detected some flaws in the statutory and regulatory framework that govern SNTs.

Recent changes in this legal structure by Congress, the Internal Revenue Service, and the State of Florida have removed some of these problems. For anyone considering establishing a special needs trust for a loved one, understanding the effect of these changes is critical.

The basics of an SNT

A special needs trust is a legal vehicle that allows a person to use personal assets to pay specified expenses, such as medical care, housing and daily living expenses, without impairing the person’s eligibility for Medicaid or other government assistance programs.

The property contributed to the trust is not counted in determining financial eligibility for Medicaid and similar programs. The document establishing the SNT must contain a provision that restricts the use of trust assets accordingly.

A difficult problem arose in Florida involving a statutory provision that prevented a person from depositing personal assets in the SNT, thereby creating what was known as a self-settled SNT. In 2016, the Florida legislature removed this provision.

The law in its preset form

As the law now stands, any person can create a self-settled SNT without jeopardizing financial eligibility for Medicaid. If the document establishing the trust is properly drafted (the trust document must be approved by the IRS, the state of Florida, and the U.S. Treasury department), the funds contributed to the trust do not affect the determination of financial eligibility for Medicaid.

The only restriction that affects the trust is the provision that limits use of trust assets to pay for the beneficiary’s housing, health care, food, clothing and similar expenses.

Do I need an attorney to create an SNT?

The internet contains many forms for SNTs that are available free of charge or for a very small fee. Unhappily, setting up an SNT is a complex legal task where the penalties for error – even innocent error – may have severe consequences.

Hiring a knowledgeable estate planning attorney can be a wise precaution against disqualifying errors in the trust document.