Special needs trust

A special needs trust is created to ensure that beneficiaries who are disabled or mentally ill can enjoy the use of property which is intended to be held for their benefit. In addition to personal planning reasons for such a trust (the person may lack the mental capacity to handle their financial affairs) there may be fiscal advantages to the use of a trust. Such trusts may also avoid beneficiaries losing access to essential government benefits.

A trust for a disabled beneficiary may be set up in any of the common law countries or other countries which recognise the concept of the trust. They have particular advantages in legislation in relation to both taxation and state benefits in for example Ireland and the United Kingdom and in relation to the provision of healthcare, long-term care and nursing home benefits under the state-sponsored Medicaid welfare system in the United States of America.

Special needs trusts can provide benefits to, and protect the assets of, physically disabled or mentally disabled. Special Needs Trusts are frequently used to receive an inheritance or personal injury settlement proceeds on behalf of a disabled person or are founded from the proceeds of compensation for criminal injuries, litigation or insurance settlements.

A common feature of trusts in all common law jurisdictions is that they may be run either by family members (a private trust) or by trustees appointed by the court. Especially where a trust is to be established for a disabled child or young person, great care is generally taken in the choice of appropriate trustees to manage the trust assets and to deal with future replacement appointments. The use of a private discretionary trust can not only be more efficient in terms of taxation and access to government benefits but can also allow for more efficient investment of funds held than where funds are held by a court official (such as the Official Receiver in England and Wales). However where no appropriate trustees can be found, e.g. on the death of existing trustees, the court will intervene.

Special Needs Trusts are often set up under the guidance of a Structured settlement planner in cooperation with a qualified legal and financial team to ensure the trust is set up correctly.

Special Needs Trusts are also known as Supplemental Needs Trusts in the USA and a more detailed article on the US specific characteristics of such trusts, including their interaction with the Medicaid system, is found at that page.