Tips on setting up a trust fund

By DANIELLE LYNCH

Setting up a trust fund for a child with special needs can be complicated because if the child has more than $2,000 in assets governmental benefits are jeopardized, according to attorney John H. “Jack” Potts.
Potts, of Herr, Potts & Potts law firm in Wayne, is a father of a Down syndrome son so he knows firsthand some of the challenges that come with setting up a trust. His clients are primarily concerned about providing financially for special-needs children without jeopardizing governmental benefits such as Medicaid, Supplementary Security Income and Medicare, Potts said.
At age 18, a special-needs child can be eligible for governmental benefits, although some children younger than 18 can also qualify, Potts said.
To help with these issues, Potts recommends that parents set up a special-needs trust without payback. In this scenario, assets are usually not put into the trust until the survivor of the parents dies, Potts said. The benefit of this type of trust is that it can have more than $2,000 and it won’t jeopardize governmental benefits and family members can contribute.
When the special-needs child or adult dies, the parents can designate where the money goes and the government gets no payback for benefits extended to the child during his or her lifetime – this is known as a “nonpayback special-needs trust,” Potts said.
Another option that Potts recommends is known as a special-needs trust with payback. In this type of trust, the assets going into the trust belong to the special-needs child, Potts said. In a payback special-needs trust, assets remaining in the trust when the special-needs child or adult dies are subject to payback to the government for benefits extended to the person during his or her lifetime, he said.
In the mid-1980s, Pennsylvania courts recognized the concept of special needs trusts, Potts said. Through the Omnibus Budget Reconciliation Act of 1993, also known as OBRA ’93, the federal government provided for pooled special-needs trusts which also preserve governmental benefits, he said.
“Special-needs trusts really came into general use in the early to mid-1990s to late 1990s,” Potts said.

To contact staff writer Danielle Lynch, send an e-mail to dlynch@dailylocal.com.