Setting Up a Special Needs Trust 

Establishing a special needs trust is not as simple as creating a basic will or living trust. In fact, these trusts are quite complex and require careful planning and drafting. For instance, special needs trusts are subject to certain tax rules and regulations. 

Some important things to know about the tax implications of special needs trusts include:

• Special needs trusts are subject to the federal estate tax and the Pennsylvania inheritance tax
• Special needs trusts are also subject to the federal income tax and the Pennsylvania income tax, although the trust may qualify for certain deductions and exemptions
• If the trust earns more than $600 in a given year, it will need to file an annual tax return
• Trustees have a duty to ensure that the trust is properly funded and invested to minimize the tax costs of the trust

At Dorko Wealth & Estate Planning, our special needs trust attorney in Berks County guide parents through the process of establishing a special needs trust. With the right guidance, we can help set up a trust that pays minimal taxes while ensuring your loved one has access to all the resources they need. 

What Are the Benefits of a Special Needs Trust?

If you have a child with special needs, it is important that you create an estate plan that includes a special needs trust. Even if your child is currently a minor and does not yet receive any government benefits, they may be eligible for benefits in the future. By setting up a special needs trust now, you can ensure that they are protected.

The benefits of a special needs trust include but are not limited to:

• Preserving the beneficiary’s eligibility for government benefits, including Medicaid and Supplemental Security Income (SSI)
• Allowing the beneficiary to receive a variety of supplemental items and services, such as specialized care, without losing their government benefits
• Providing the beneficiary with a higher quality of life
• Ensuring the beneficiary is provided for if their parent or guardian passes away
• Protecting the beneficiary from financial exploitation or mismanagement of funds
• Reducing estate taxes

One of the most important things to understand about special needs trusts is that they are designed to protect a person’s eligibility for government benefits, including Medicaid and SSI. When you create a special needs trust, you can help ensure that your loved one is able to get the medical care and support they need without losing their benefits.

What Are the Special Needs Trust Eligibility Requirements?

A key requirement for special needs trusts is that the beneficiary cannot own the assets funding the special needs trust. In order for a beneficiary to benefit from a trust without losing government benefits, a parent, grandparent, guardian, or court must fund the special needs trust on the beneficiary’s behalf. However, a beneficiary's own assets can fund the trust under certain circumstances. 

A legitimate special needs trust funded by the beneficiary's own assets must meet the following requirements:

• The beneficiary is under the age of 65 when the trust is created
• The trust is for the sole benefit of a person with a disability as defined by the Social Security Administration
• The trust must be irrevocable
• All remaining funds in the trust reimburse Medicaid upon the beneficiary's passing

When you work with our special needs trust attorney in Berks County, we can help you understand the eligibility requirements and ensure that your loved one is protected and fully provided for. 

Special Needs Trust vs. ABLE Account

You're likely familiar already with ABLE accounts: tax-advantaged savings accounts that can be used to help individuals with disabilities pay for certain expenses. While ABLE accounts are a good option for many families, they are not the right choice for everyone.

Some of the key differences between ABLE accounts and special needs trusts include:

• Special needs trusts can be funded with the beneficiary’s own assets, while ABLE accounts must be funded with after-tax contributions
• Special needs trusts have no annual contribution limit, while ABLE accounts have a maximum annual contribution limit
• Special needs trusts can be used to pay for a variety of expenses, while ABLE accounts can only be used for “qualified disability expenses”
• Special needs trusts are managed by a trustee, while ABLE accounts are managed by the beneficiary (or their parent/guardian)
• ABLE accounts have no payback requirement (which is only true of special needs trusts funded by beneficiary assets)

There are also several eligibility requirements for ABLE accounts, including that the beneficiary must have developed their qualifying disability prior to the age of 26. If you are unsure whether a special needs trust or an ABLE account is right for your loved one, our special needs trust lawyer in Reading can help you understand your options and make an informed decision.

Managing a Special Needs Trust

If you are considering creating a special needs trust for your child, you will need to think carefully about who to name as the trustee. You may choose to name a family member or close friend as the trustee, or you may decide to use a professional trustee, such as a bank or trust company.

When selecting a trustee for a special needs trust, you should consider:

• The trustee’s ability to manage the trust’s assets
• The trustee’s willingness to take on the responsibility of managing the trust
• The trustee’s relationship with the beneficiary
• The trustee’s relationship with the rest of the family
• The trustee’s location (if they live far away, it may be more difficult for them to manage the trust)
• The trustee’s knowledge and experience with special needs trusts and the administration of public benefits
• The trustee’s ability to make critical decisions

The trustee has a fiduciary duty to act in the best interests of the beneficiary and to manage the trust according to its terms. This includes distributing funds to the beneficiary per the terms of the trust and ensuring it remains properly funded and invested. If you are unsure about who to name as the trustee of your child’s special needs trust, our Berks County SNT lawyers can help you evaluate your options and make an informed decision.

Why Choose Dorko Wealth & Estate Planning?

Dorko Wealth & Estate Planning has extensive experience handling every aspect of estate planning, including the creation of special needs trusts. Our special needs trust attorney in Berks County can lay out your options and guide you through the process of creating a thorough and effective estate plan that accounts for loved ones with disabilities.

When clients work with our firm, they learn to expect one-on-one attention and tailored legal solutions. We are committed to providing your family with the compassionate, reliable legal service you need and deserve.

Get in touch with us today at (610) 957-0018 to schedule a consultation with our special needs trust lawyer in Berks County, PA.