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Special Needs Trust Basics
If you set up a revocable trust, you can change it if you choose to. Revocable means "can be changed or canceled." You can cancel it entirely, if you wish.
That's not true for an irrevocable trust. Irrevocable means "cannot be canceled." Contributors to the trust cannot cancel the trust once it is funded. Aside from that, several kinds of changes can be made.
The Arc of Northern Virginia's special needs trust is revocable until it is funded, which means money is put into the trust. It is irrevocable after it is funded. Limited changes may be made after the trustee takes control of the money in our irrevocable trust.
Our clients use trust plans as they care for someone with a special needs trust. A trust plan is also called a letter of intent. The plan tells the story of the life and interests of a beneficiary. It's helpful for everyone working with him or her. The plan should include information about the past and present, but also expectations for the future.
Family members work out the plan with their loved one with a disability.
It should include things about the beneficiary such as:
- friendships and social life
- work and hobbies
- strategies that work and strategies that don't work
- helpful advice for working with the beneficiary
- circumstances that might trigger undesirable behavior
- interests
- living arrangements
- medical and health situation
- computer, cell phone and other technical skills and challenges
It's helpful to know how he or she gets around in the community.
The plan should cover services the beneficiary receives. List the name, nature and cost of each service. Trust money may be used to pay for those services.
The plan needs to include expected costs. That helps when making and following a budget.
There are two kinds of special needs trusts.
- A family-funded trust is set up with money from a family or friends to help a person with a disability. Parents, grandparents, and other people can add money to the trust. Friends can contribute, too. The beneficiary cannot put money in this kind of trust.
- A self-funded trust allows the person who benefits from the trust to add money to it. Specific people, parents, grandparents, guardians and a court, can set up this trust. But only the beneficiary's own money can fund this kind of trust.
Someone with a disability may set up a self-funded trust if they get money they weren't expecting. The money could come from a will that named the person with a disability directly to receive the inheritance, a court settlement, or alimony. The money could also come from Social Security benefits, adult child support, or work income. Military survivor benefits are often also deposited into a self-funded trust.
Money left over in a trust after the beneficiary dies is called the remainderment.
- Money left in a family-funded trust can go to any person or organization. The Arc of Northern Virginia benefits greatly when people leave that money to its Foundation.
- Money left in a self-funded trust must be paid to Medicaid in most cases. It would not be paid to Medicaid if it is left to the Foundation of The Arc of Northern Virginia.
Two master agreements guide the special needs trusts of The Arc of Northern Virginia. One master agreement covers family-funded trusts. The other master agreement covers self-funded trusts.
A family or individual “joins” one of these trusts by executing a joinder agreement. That agreement lists terms that apply to the beneficiary of the trust. These terms are in addition to what's in the master agreement.
Those terms include:
- What fees will be charged
- Who will represent the beneficiary if the beneficiary cannot represent himself or herself
- How the trust will be funded
- How to handle money left after the death of the beneficiary
A grantor is a person who provides money for a special needs trust. Trust documents may name one or more grantors.
In a family-funded special needs trust, grantors may be friends or family. Family or others may plan to leave money to a trust beneficiary when they die. It's important to name the trust, and not the beneficiary, in wills and insurance papers. The person who will benefit from the trust (the beneficiary) may not add money to a family-funded trust.
Self-funded trusts are created with money from the beneficiary. See above, "How are family-funded and self-funded trusts different?" for more details.
Setting Up a Trust
The Arc of Northern Virginia Special Needs Trust charges fees to start and maintain a trust.
Learn more in the Fees section below.
Our trust team will help you set up your family-funded trust.
Once you are enrolled, you can choose when to fund the account. While there is no money in the account, you'll be charged an annual maintenance fee.
People often fund the family-funded trust account using a will or insurance policy. Sometimes a special needs trust is funded by another trust. It's critical that those papers properly name the Foundation of the Arc of Northern Virginia's special needs trust and not your loved one with disability.
With good planning, money in a trust will last many years. Estimating how long someone will live helps plan how much money to spend each year. Sometimes people live longer than expected, and sometimes, their trusts run out of money.
Family or friends may give money to the trust if it runs low.
If that is not possible, the trust may be closed.
A special needs trust is a great way to make life better for someone with a disability. With good planning, money in a trust will last many years. Estimating how long someone will live helps us plan how much money to spend each year. But sometimes the beneficiary dies before all the money is spent. The money left over is called the remainderment.
Your special needs trust plan takes that into account. When you complete the joinder agreement, you decide what to do with money after the trust closes. Some people choose to leave leftover money to a person; others leave it to an organization they support.
We encourage people to leave money to The Foundation of The Arc of Northern Virginia. Leftover money is added to the Foundation's trust. We do not require leftover money to be given to the Foundation.
But as you plan your trust, please consider how you can help others who could benefit from leftover trust money.
When you complete the joinder agreement, you decide what to do with money after the trust closes. Some people choose to leave leftover money to a person; others leave it to an organization they support.
We encourage people to leave money to The Foundation of The Arc of Northern Virginia. Leftover money is added to the Foundation's trust. We do not require leftover money to be given to the Foundation.
But as you plan your trust, please consider how you can help others who could benefit from leftover trust money.
More Information
Here's complete information about setting up a new special needs trust.
Working With a Trust
Rules limit how money from a special needs trust can be spent.
Breaking the rules could affect government benefits. We want to make sure that doesn't happen.
That's why we set up a process for requesting money from our trusts. We call it the disbursement process. A disbursement is a payment from a trust.
Requesting Money from a Trust
A beneficiary does not have direct control over the money in a trust. The Arc of Northern Virginia manages the trust and decides how money is spent. A beneficiary may ask for money to be spent on a purchase. If the request is approved, The Arc authorizes the trustee, Key Private Bank, to make the payment.
The process starts with the beneficiary. They may need or want to buy something. A family member or other person named in the trust agreement acts as primary representative (PR). The PR fills out a disbursement request form. Staff from The Arc of Northern Virginia can help with the forms.
The Review Process
Arc staff review every request for trust money. The review process is discretionary. That means The Arc of Northern Virginia has a choice whether to approve a request.
Approval depends on several things. If a request from a PR is within budget, is allowed by government rules and is allowed by trust rules, it will probably be approved.
Trust Money is for "Nonsupport Purposes"
The trustee follows government rules when reviewing requests. Special needs trust money is for things that government benefits do not support. That may include rent, utilities and groceries. Payments for "nonsupport purposes" are allowed. There are many things in this category. The Arc of Northern Virginia will help explain the rules and how they apply in different cases.
We want family members to take part in decisions and give advice. You know your loved one better than anyone else. Our staff knows regulations and works with government agencies. Our staff also understands the needs of people with disabilities. We work together to make the best decisions for your loved ones.
The amount of money spent from a special needs trust may vary each year. The money in the trust may need to last for many years. That is why each beneficiary needs to have a budget.
Part of setting the budget is estimating how long the beneficiary will live. We want to be sure the trust will last at least that long. So the amount of money used every year needs to be carefully monitored.
The Arc of Northern Virginia decides whether to approve requests for money from a trust. Keeping expenses within budget is one of the things our staff does well.
The Arc of Northern Virginia Special Needs Trust charges fees to start and maintain a trust.
Learn more in the Fees section below.
More Information
Here's complete information about all the ways to work with money from a special needs trust.
Moving a Trust to The Arc of Northern Virginia's Program
Our special needs trust program has advantages over most other trusts. You may be able to set up a trust that has some of these, but it will be hard to match them all.
Our trustee is Key Private Bank, a corporation
Having a friend or relative as trustee can work well. But not always. A person chosen as trustee could move, die or simply decide it's too much work. And it is a lot of work.
Staff at The Arc of Northern Virginia manages the trust
The people at The Arc of Northern Virginia may change, but the mission of The Arc will not. It will always be a reliable source of information. And it will always advocate for people with disabilities.
We handle regulations, reports and requirements
Being a trustee means staying up to date with regulations. It could mean sending reports to government agencies. It means monitoring monthly income. It's a complicated role. And government benefits are at stake every month.
Our trust staff handles all of that. They understand and work with these requirements every day. They monitor changes in laws and regulations. Our team is very good at it because they do it all the time.
We know and work with agencies that support people with low incomes
People with disabilities may get government benefits if they have very little income and savings. It's fair to say that most banks don't handle trusts for people with low incomes. As a result, most banks are not experts at working with those agencies. Our staff are experts. It's what we do every day.
You can start small
Most corporations won't set up a trust with less than $350,000. We have a $10.00 minimum and no maximum. With our special needs trust, there's no need to fund the trust right away.
Better service, less stress
At The Arc of Northern Virginia we are here to help. Together we complete the trust documents. We remind you to follow through with updating and changing other legal documents and beneficiary designations. Each step of the way we are here to answer your questions. Once your document is complete and your questions are answered we keep in touch. We are here for you.
What Fees Apply?
One-Time Fees
Enrollment Fee
Applies to: Everyone creating a new trust.
What it is: This fee covers consulting with trust staff and developing trust documents.
When it is due: Pay once, interest-free, when you establish the trust. You may pay the fee in monthly installments within the first year of the trust.
Cost: $1050 for the first trust. $775 for each additional trust.
Closing Fee
Applies to: Trusts that are closing because the beneficiary has died or the trust has run out of money.
What it is: This fee pays for closing the account; securing a death certificate; notifying agencies and others who need to know that the trust has ended; distributing the remaining funds.
When it is due: When the trust needs to be closed.
Cost: $250
Annual Fees
Annual Maintenance Fee
Applies to: Trusts that have been set up but not yet funded.
What it is: This fee covers yearly trust updates. Paying this fee keeps you enrolled in the trust program. If you don't pay the fee, the trust is considered idle. When the trust is funded, the unpaid annual renewal fees will be paid from the funding amount.
When it is due: Pay once a year on the anniversary of your enrollment until the trust is funded. After that, management fees apply.
Cost: $65.
Combined Annual Management Fee for Trust Manager and Trustee
Applies to: Trusts that are funded and active.
What it is: This fee pays for asset management & allocation, account & tax reporting, and disbursement of trust funds. This fee also covers day-to-day client relations & updates to trust documents.
When it is due: It is drawn monthly from funds in the special needs trust by the Trust Manager, The Arc of Northern Virginia and the Trustee, KeyBank.
Cost: 1.44% or 144 basis points per year.
Tax Preparation Fee
Applies to: Only trusts that produces a Grantor Tax Letter or K-1 (1040) form.
What it is: This fee pays for the Trustee preparing and mailing the annual tax form to trust clients.
When it is due: Pay once per year at the end of the year.
Cost: $40
Let's Talk About the Future
Take the first step toward creating a Special Needs Trust for a loved one with a disability.
Make an appointment for a free one-time consultation on trust basics. Choose a date and time that works for you.