Understanding Special Needs Trust Bonds

The essential purpose of a Special Needs Trust is usually to improve the quality of an individual’s life without disqualifying him or her from eligibility for public benefits, such as Medicaid, Social Security, or Mental Health or Mental Retardation benefits. The beneficiary of a special needs trust must be under the age of 65 and will usually (but not always) be disabled.

Special Needs Trusts are set up so that the incapacitated person can continue to qualify for medical assistance, and the trust assets are basically used to meet the special needs of the beneficiary during their lifetime, such as:

  • Customized vehicles for transportation
  • Sophisticated therapy equipment in the home
  • Extended therapy in the hospital
  • Occupational therapy
  • Education
  • Special housing needs.

Any expenditure must have a reasonable relationship to the needs of the beneficiary.

Self-funded trusts are one type of Special Needs Trust and are typically funded by the disabled person’s (beneficiary) assets, which could stem from an injury settlement or inheritance. A self-funded trust must state that any money left in the trust at the time of the beneficiary’s death be made available to repay the Department of Welfare for any Medical Assistance benefits paid on behalf of the beneficiary over their lifetime.

The trustee is required to properly account for all expenditures made.  The trustee is also obligated to invest trust assets prudently. Legal counsel and professional investment, tax and accounting assistance will be required in administration of almost every special needs trust.

The Department of Welfare sends the trustee an annual statement of claim to show the current amount due, which is a running total of all medical bills paid on behalf of the beneficiary since the execution of the Special Needs Trust.  The idea is to spend down the trust assets on allowable expenditures to avoid having to reimburse the Department of Welfare for benefits paid out over the beneficiary’s lifetime.

Special Needs Trusts generally require both Orphan’s Court and the Department of Welfare’s approval.  A Special Needs Trustee Bond is usually required of individual trustees in an amount determined to be adequate by the Orphan’s Court and Department of Welfare. The bond guarantees that the trustee manages the trust and carries out his or her fiduciary duties correctly.  Corporate Trustees (usually banks or trust companies) do not need to post a bond because they already have adequate fidelity and fiduciary liability coverage in place.

Surety Bond Associates is a leading provider of Special Needs Trustee Bonds.  Contact us today to learn more or to apply for a Special Needs Trustee Bond.

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