When you have a child or close family member with special needs, you might need to form a special needs trust to plan for their future. The following is some information to consider when creating a special needs trust, and never hesitate to discuss specific questions with an estate planning attorney.
Why a special needs trust is important
You want to make sure that your loved one has funds to support them if they cannot work. However, depositing money in a bank account will render them ineligible for important government benefits. The same is true if your loved one receives a large personal injury settlement or is the beneficiary of a life insurance policy or other financial accounts. By placing the funds in a special needs trust, your loved one can use them while still receiving benefits.
This is true because the beneficiary of a special needs trust does not have automatic access to the funds, as they must receive distributions from a third-party trustee. This eliminates the trust from consideration for benefits eligibility.
Who is in charge of the trust?
As part of the trust formation process, you will need to select a trustee to manage and distribute the assets. The funds can only be distributed for specific reasons, and you need a trustee who will follow the rules to ensure continued benefits eligibility. You will need to choose a third party to serve as the trustee, which might be a trusted individual or corporation.
The trustee will have discretion on how to manage and distribute trust assets, so it should be someone with financial knowledge and responsibility. They also must follow the rules and only make appropriate distributions. Choosing the right trustee can be a challenging task.
How can you use a special needs trust?
Government benefits are only intended to cover basic needs for people with special needs. The funds from a special needs trust can be used to increase a person’s quality of life by covering things such as:
- Cell phone plans
- Housing costs
- Education expenses
- Cable and internet
- Therapy and medical care not covered by Medicaid
It can help to pay vendors for these services directly, as then it will not ever be in the hands of the trust beneficiary and risk being counted as income.
Often, the trustee will consult with a care manager, who can advocate for the specific needs of the trust beneficiary. They ensure that the beneficiary receives the care or services they need and that the trustee is doing their job.
Discuss a special needs trust with an estate planning attorney
Special needs trusts have strict rules and guidelines, so it is important that you have legal guidance when forming a trust. If you have a child or loved one with a disability and special needs, you should not wait to look into this possibility to ensure they have the support and care they need. A qualified estate planning lawyer can inform you of your options.