Special needs trusts: providing continuity when the parents are gone
An inheritance transfers assets and is then finished. A trust carries on working. Where the beneficiary will need support throughout life, the difference between the two is the difference between a sum handed over and an arrangement that keeps functioning for years.
"Parents do not ask who will inherit. They ask who will care, what their child will live on, and who will make sure the money is actually used for them. A will alone does not answer that."
Adv. and Notary Igal Mor
The question parents arrive with
Parents of a child or an adult with a disability almost always arrive with the same question: what happens when we are no longer here. Not who inherits, but who will care, what they will live on, and who will make sure the money we leave is actually used for them over the years.
An ordinary inheritance does not answer that question. It transfers assets into the heir's ownership, and there its work ends. From the moment of transfer, three questions remain open:
- Who manages the money. If the heir cannot manage their financial affairs, a separate arrangement for management is needed.
- How long it will last. A sum transferred in one go may be exhausted, or used for a purpose the parents did not intend.
- What happens at the end. If the heir dies without a will, the property passes under the succession rules, and not necessarily to the siblings or the body the parents would have chosen.
A trust is the tool designed to answer all three at once, which is why it sits at the centre of estate planning for a family in this position.
What a special needs trust is
A special needs trust is not a separate species of trust in Israeli law. It is an ordinary trust whose terms have been drafted to serve a beneficiary who will need support throughout their life. The name describes the purpose, not a distinct legal institution.
Every trust has three roles:
- The settlor. The parent, or whoever transfers the assets and defines the terms.
- The trustee. The person who holds and manages the assets under the trust deed. The assets are not theirs.
- The beneficiary. The person for whose benefit the assets are managed, here the son or daughter with the disability.
The material difference from an ordinary inheritance is that the assets do not pass into the beneficiary's ownership. They are held for them and distributed under rules fixed in advance, over years rather than in a single payment. It becomes possible, for example, to provide that the trustee continues to fund housing, therapies or leisure activity rather than paying sums into the beneficiary's hands.
The basis in the Trust Law
The Trust Law, 1979 provides the framework. Section 1 defines a trust as a relationship to an asset by virtue of which a trustee is bound to hold or act with it for the benefit of a beneficiary or for another purpose. That definition is what allows the holder of an asset to be separated from the person who benefits from it.
Section 2 sets out three ways a trust is created: by law, by contract with a trustee, or by a deed of endowment. Family estate planning uses the latter two.
Two provisions should be understood before signing:
- Section 17. An endowment is made in writing signed before a notary or by will, and it commences when control of the endowment assets is transferred to the trustee. A signed document unaccompanied by a transfer of assets does not create a trust in practice.
- Section 18. After the endowment has commenced the settlor may not vary, reduce or revoke it, save under a right reserved in the deed, with the consent of the beneficiaries, or with the approval of the court. Assets may be added.
The practical conclusion is that room for flexibility is created at the drafting stage. What is not reserved in the trust deed is very hard to change later. See trusts in estate planning.
By will or during lifetime
There are two principal ways to establish the trust, and the choice affects when it starts and how much control the parents retain.
- A trust created by will. The parent provides in their will that part of the estate passes to a trustee and is held on trust. The trust arises after death. The advantage is that the parent keeps full control of the assets during their lifetime and the arrangement can be changed while they remain capable. The drawback is that the trustee does not begin to act before death, so there is no trial period.
- A trust created during lifetime. The parents transfer assets to a trustee now. The advantage is that they can see how the arrangement works and correct it; the drawback is giving up control over the assets transferred, subject to the rights reserved in the deed.
A combination is common: a modest trust operating during lifetime to test the mechanism, alongside a provision in the will transferring the remaining share of the estate into it. See wills and inheritance.
Choosing the trustee and supervising them
The trustee is the most important decision in the trust. They are the one who will exercise judgement over many years, usually without the parent being able to correct their course.
Three options are considered:
- A sibling or relative. They know the beneficiary and know what the parents wanted. The risks are conflict of interest, particularly where they are themselves an heir, and the personal burden over many years.
- A professional. A lawyer, an accountant or a trust company. The advantage lies in management and record keeping, the drawback in cost and in distance from the beneficiary.
- A combination. A professional trustee alongside a family member, or a single trustee with a family appointed supervisor. This is the usual answer where both professionalism and familiarity are wanted.
Alongside the identity of the trustee, supervision has to be arranged: periodic reporting and to whom, the procedure for replacing a trustee, and who appoints a substitute if the first cannot continue. A trust deed without a replacement mechanism creates total dependence on one person.
The relationship to entitlements and benefits
One of the main reasons to prefer a trust over a direct inheritance is the preservation of entitlements. Some entitlements are assessed by reference to income or means, so receiving a large sum at once may affect them.
Three practical points:
- Not every entitlement is assessed the same way. Some benefits are determined by medical and functional tests, while others are assessed by income or means. There is therefore no blanket answer, and a specific check with the National Insurance Institute and the other relevant bodies is required.
- The manner of distribution matters. A payment made directly to the beneficiary and a payment made directly to a service provider are not necessarily assessed in the same way. That is settled in the trust deed.
- Check and document in advance. The check is done before drafting, not once the trust is already running.
One point should be stated plainly: no arrangement guarantees that an entitlement will be preserved. What a good arrangement does is structure distributions so that they serve the beneficiary without needlessly affecting rights they already hold.
The tools that complement the trust
A trust deals with the money. It does not deal with who makes decisions on the beneficiary's behalf, so it is one of several tools rather than all of them.
- Supported decision making. An adult who is capable of making their own decisions but needs help can have a decision supporter appointed. The supporter helps gather information, explains it and presents the options, while the decision and the signature remain with the person. The appointment is made by the family court. See decision supporters.
- An enduring power of attorney. Made by a person while capable, setting out who will act for them if they can no longer manage their affairs. See enduring power of attorney.
- Guardianship. The most far reaching arrangement, and therefore the one reserved for situations in which the less restrictive tools do not suffice. See appointment of a guardian.
The order of examination matters. The guiding principle is to begin with the least restrictive tool and move to a more restrictive one only where the first does not answer the need.
Mistakes that repeat
Most problems with special needs trusts arise not from the idea but from the detail. Five recur more than the rest.
- A trust that was never funded. A trust deed was signed but no assets were transferred. Under section 17 of the Trust Law, an endowment commences when control of the assets passes to the trustee.
- No substitute trustee. The sole trustee dies or cannot continue, and there is no mechanism for appointing another.
- Directions that are too general. "To provide for their welfare" is not a direction that can be applied. Criteria, priorities and a budget are needed.
- No provision for the end. Nothing is said about what becomes of the remaining assets after the beneficiary's death, so the default rules apply.
- Will and trust that contradict each other. Two documents prepared at different times by different professionals, with nobody checking one against the other.
The simplest test is to read the documents through as though they were one, and ask whether a stranger reading them would know exactly what to do.
In summary
A special needs trust is an arrangement rather than a document. It exists to answer the question of what happens when the parents are gone, and to keep answering it for years after it was drawn up.
- The assets do not pass into the beneficiary's ownership. They are held for them and distributed under rules fixed in advance.
- Section 17 of the Trust Law provides that the trust commences when control of the assets passes to the trustee. A document without a transfer is not enough.
- Section 18 restricts variation once the endowment has commenced. Flexibility is reserved in advance, in writing.
- The choice of trustee, the replacement mechanism and supervision matter no less than the size of the fund.
- The effect on entitlements is checked specifically before drafting, not afterwards.
The arrangement brings together trust law, succession law, legal capacity and social security entitlements. It is therefore built as a whole, with advisers who know all four fields.
If you are a parent of a child or an adult with a disability and want to put the future in order, contact us for an initial assessment. We will review the family position, the existing documents and the options available to you.
Questions that recur about special needs trusts
These answers are general and do not replace advice on your own file.
What is a special needs trust?
How does it differ from an ordinary inheritance?
When does the trust start to operate?
Can the trust be changed after it is established?
Who can serve as trustee?
Does a trust affect benefits?
Which is better, a trust by will or during lifetime?
What happens to the money after the beneficiary dies?
Is a guardian needed if there is a trust?
How much is needed to set up a trust?
Does a trust have to report for tax?
What should the trust deed contain?
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