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Understand and Using a Special Needs Trust in Florida

On Behalf of | Mar 3, 2023 | Estate Planning

Many Florida families have a member who has suffered a disabling illness or injury and must depend on one or more state or federal income subsidies. A common estate planning tool for these families is a special needs trust. Understanding the basics of special needs trusts can be the key to maximizing the governmental assistance for the disabled family member.

The basics

A special needs trust is a trust whose assets are limited to paying the living and health care costs for the designated beneficiary. Most financial assistance programs, such as Social Security Disability Insurance, have an income cap that prohibits participation by any person whose annual income exceeds the cap. Under a special needs trust, the trust income does not count against the cap as long as the trust assets are devoted to specified uses and so long as the beneficiary is disabled as that term is defined by the Social Security Administration (SSA).

A special needs trust can be established using funds provided by the beneficiary (a first-party trust) or by a third party (third-party trust). Funding for a third-party trust can come from any number of sources, such as family members, gifts, an inheritance or proceeds from the settlement of a lawsuit.

Choosing a trustee

Every SNT must have a trustee. The trustee can be anyone, including a friend, family member, an attorney or professional trustee such as the trust department of a bank. The choice of a trustee is a crucial decision. The trustee must have some business experience, knowledge of accounting and proven management experience.

Trust expenditures

Trust assets can only be used for certain specified purposes. These purposes are listed in Internal Revenue Service regulations and state regulations. Generally, the approved purposes include health care, shelter, clothing and food. Trust assets cannot be used for any other purpose.

Benefits of an SNT

The income earned by an SNT is not considered taxable income. Because SNT assets and income can be used for the same purposes as the financial assistance provided by a state or the federal government, an SNT effectively increases the amount of money provided to the beneficiary by the trust.

Setting up an SNT

The federal and state laws governing SNTs are complex, and the trust document must comply with these rules. Anyone considering an SNT should seek advice from a knowledgeable estate planning attorney.