Helping trustees secure the future of a child with special needs
What is a Special Needs Trust?
A Special Needs Trust (SNT) is a legal arrangement that allows a special needs child to still be eligible to receive government benefits while keeping his or her assets at the same time.
The two main types of government benefits that Special Needs Trust protects are Medicare and Supplemental Security Disability Income (SSDI). Both provide medical assistance and other long-term support that a child with special needs requires.
There are two kinds of Special Needs Trust:
- First-Party Trust – this trust is funded with the money or property that a child with special needs has already inherited or has been awarded to him or her by the court.
- Third-Party Trust – created by a loved one (trustor) of a child with special needs in preparation for inevitabilities. This type of SNT is included in the last will and testament of the trustor. A third-party trust will only be funded upon the trustor’s death.
What is a Special Needs Trust Bond?
It is a surety bond that the person responsible for administering either a first-party trust or a third-party trust is required to obtain. This person is known as the “trustee.” Special Needs Trust Bonds are classified as Guardianship Bonds.
There are three parties to this bond:
- Principal – Trustee
- Obligee – The beneficiary of the Special Needs Trust Bond
- Surety – Surety bond company who will issue the bond
A Special Needs Trust Bond serves as a financial guarantee regarding the fulfillment of the trustee’s fiduciary duties. These duties vary per SNT. It will depend on what has been legally agreed upon regarding the administration of trust.
Aside from that, this bond will be used to compensate the Obligee if the Principal commits a breach of duty or violates the conditions of the agreement. Examples of violations are as follows:
- The trustee uses the beneficiary’s (child with special needs) assets for himself or herself
- The trustee fails to pay the applicable taxes
- Fails to provide a safe environment for the beneficiary
- Fails to protect the beneficiary from making poor financial decisions
If a claim arises because of the Principal’s breach of duty, the Surety will conduct its own investigation to verify the claim. If a claim is valid, the Surety will pay the Obligee.
Since this bond is an indemnity product, the Principal is legally required to reimburse the full amount paid by the Surety.
How much is a Special Needs Trust Bond?
This will be a case-by-case basis. The bond amount will depend on what the statute or the court dictates in a particular state.
Typically, the bond amount will be based on the following:
- The value of the personal property of the estate.
- The probable annual gross income of all of the property of the estate.
- The public benefits of the beneficiary
The bond premium of the trustee is different from the bond amount. Bond premiums are calculated based on the bond amount and other factors such as the credit score of the trustee.
A Special Needs Trust Bond premium starts at 1% of the bond amount for trustees that have excellent credit scores.
How to Get a Special Needs Trust Bond?
You can get this bond by following these 3 simple steps:
- Submit the necessary documents needed during the underwriting process. Some of these are your financial report, credit report, and job performance history. During this process, an underwriter will perform an in-depth assessment of your documents in order to determine the level of risks involved.
- Sign the indemnity agreement and pay the bond premium. After that, your bond will immediately be issued and sent to you.
GET YOUR FREE SPECIAL NEEDS TRUST BOND QUOTE HERE
My cousin was born with a hearing disability, so my aunt is planning to prepare a special needs trust for her soon to help with her treatment moving forward. I’m thankful you explained to us that a special needs trust allows a child with a disability to receive medical assistance and long-term support. I’ll take note of this while I help my aunt look for an estate planning advisor who can help prepare the special needs trust for my cousin soon.