Saturday, 26 September 2020

Estate Planning: The advantages of a stand-alone special needs trust

Most people who have heard about special needs trusts are familiar only about the Testamentary Special Needs Trust.

Testamentary trusts are established at the death of the person establishing the trust pursuant to his trust or will.

Stand-alone Special Needs Trusts, however, are established while the benefactor is alive. Let us compare these two trusts.

First, the Stand-alone SNT can receive assets from multiple persons wishing to provide for the well-being of the person with special needs.

This can be a real cost saving to the family and encourage giving by persons who might otherwise be discouraged by the cost of establishing a special needs trust. That is, only one special needs trust would be established to allow multiple benefactors to make bequests into the same special needs trust.

Second, when the benefactor dies, or perhaps becomes disabled, the assets inside Stand-alone SNT remain immediately accessible to assist the person with special needs from the date the trust is established.

The Testamentary SNTs are not immediately accessible until the share belonging to the special needs trust is transferred into the special needs trust. That delay can be avoided by having assets inside a Stand-alone SNT that are always accessible to the trustee of the special needs trust

Third, the Stand-alone SNT is a single purpose trust. A Testamentary SNT, on the other hand, is a subtrust created within the scope of the broader revocable living trust document.

Accordingly, the Stand-alone Trust has more provisions specifically relevant to special needs trust.

The most important provisions typically pertain to the oversight and replacement of the trustee (usually by a trusted family member), the distributions at the death of the special needs beneficiary, and the amendment of the special needs trust if necessary to conform to new laws affecting special needs benefits.

Fourth, the assets transferred into the standalone trust are not answerable to the creditors of the estate of the deceased benefactor.

Provided that the benefactor transferred assets into the Stand-alone SNT at a time when he or she was solvent, those transferred assets are removed from the benefactor’s estate.

They are not subsequently answerable to the benefactor’s own creditors, whereas the assets within the benefactor’s living trust, on the other hand, are answerable for the debts of the deceased benefactor.

If these assets are the assets with which the benefactor intended to fund the Testamentary SNT, then what is actually transferred into the special needs trust may be less than intended (after the creditors are paid).

Finally, establishing the Stand-alone SNT and administering it while the benefactor is still alive, allows an opportunity to become familiar with the rules related to administering such a trust.

That way, if experience shows that any adjustments are needed they can be made under the supervision of the benefactor who may be the initial trustee or the trust protector (i.e., person who can replace the trustee).

Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 First St., Lakeport, California. Dennis can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235. Visit his Web site at www.dennisfordhamlaw.com .

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