How to establish a Special Needs Trust
In general, the steps for establishing any Trust are straightforward. All that needs to be done is sign the trust documents and fund the Trust with money or other property.
The steps for establishing a Special Needs Trust are also straightforward, but they will differ somewhat depending on the type of Special Needs Trust you want to establish. The three basic types of Special Needs Trusts are listed below with a brief summary and a description of the steps that must be taken to establish them. Please see our page, What is a Special Needs Trust, if you want to review the differences between these Trusts.
A Third Party Special Needs Trust is the type of Special Needs Trust that is usually established by a family member of the Trust beneficiary but can be established by any independent party. These Trusts can never be hold assets that originally belonged to the Trust Beneficiary. To establish a Third Party Special Needs Trust, the family member needs to sign the trust document and then transfer the assets to the Trustee. The trust document is provided by an attorney who provides legal representation and writes all the necessary documents. Alternatively, a pooled Third Party Special Needs Trust document can be downloaded from the Center’s document download page by going to our link for the National Community Trust.
A Non-Pooled Special Needs Trust is one of the two types of Special Needs Trusts that must be established with assets that originally belonged to the Trust beneficiary. These Trusts must be established according to some specific legal requirements.
For many years, these legal requirements prohibited the individual Trust beneficiary from signing his or her own trust document. By contrast, the trust document could only be signed by the Trust beneficiary’s parent, grandparent, or legal guardian. The Trust could also be created by a Court, but the Trust beneficiary was not permitted to sign the trust document under any circumstances even though the Trust must be funded with the beneficiary’s assets.
However, this prohibition was removed as of December 13, 2016 when former President Obama signed the 21st Century Cure Act into law (the “Act”). Section 5007 of the Act amended Section 1917(d)(4)(A) of the Social Security Act (42 U.S.C. §1396p(d)(4)(A)) by adding the word “individual” to the category of parties who are authorized to establish Special Needs Trusts.
There was never any good explanation for why the Trust beneficiary could not sign his or her own trust document other than to say that it was simply the law. However, changing the law was a very positive development because it simplified the process of establishing a Special Needs Trust in many cases. Once the Trust has been signed by the individual, a parent, a grandparent, a legal guardian, or established by a Court, the beneficiary’s assets can then be transferred to the Trustee. The trust document is provided by an attorney who provides legal representation, writes all the necessary documents, and obtains a Court order if necessary.
A Pooled Special Needs Trust is the other type of Special Needs Trust that must be funded with assets belonging to the Trust beneficiary. These Trusts must also be established according to some specific legal requirements, but fortunately, there has never been a prohibition against the Trust beneficiary signing his or her own documents. The trust document must therefore be signed by the individual, a parent, a grandparent, a legal guardian, or established by a Court. Once the Trust has been signed, the beneficiary’s assets can then be transferred to the Trustee.
One other specific legal requirement for Pooled Special Needs Trusts is that they must be administered by a non-profit association. Because they are administered by a non-profit Trustee, the Pooled Special Needs Trust documents are provided by the Trustee instead of being written each time by an attorney. The non-profit Trustee establishes a Master Trust, and a second trust document called a Joinder Agreement is typically used to create an individual Trust account for the beneficiary.
The Medicaid and Social Security laws that authorize Pooled Trusts say that assets can be pooled for investment and management purposes, but that separate accounts must always be maintained for each beneficiary. As a non-profit Trustee, the Center offers a National Pooled Trust and an array of 18 different State Pooled Trusts. These Pooled Trust documents can be downloaded from the Center’s document download page by visiting State Pooled Trusts.