At the heart of estate planning is the need to prepare for the future, and to try to ensure that your loved ones are well-cared for in your absence. This is especially important for parents or relatives of those with special needs. Because many with special needs rely on others for financial support well into adulthood, caregivers facing these challenges should consider the possibility of a special needs trust.
Understanding Special Needs Trusts
Anyone can create a trust, which holds money or other assets for the benefit of a third party, known as the beneficiary. Oftentimes trusts have a special purpose, such as paying for educational expenses, or supporting a child up to a certain age. Special needs trusts are created specifically to protect and benefit individuals who are disabled, or have special mental or physical health needs.
Special needs trusts are created when the beneficiary lacks the ability to financially support himself or herself, and doesn’t have the mental capacity or ability to manage finances that another individual would provide. Instead, a trustee is appointed to oversee and manage the trust, which can provide the beneficiary with housing, food, and other basic needs.
Special Needs Trusts and Government Benefits
Many individuals with special needs receive government assistance to help with large medical bills, the ongoing need for treatment, and financial support. But programs like Medicaid and Social Security Disability Benefits typically require recipients to have minimal assets in order to receive assistance.
If recipients receive large sums of money through relatives or an estate, they will likely lose benefits. Special needs trusts help to avoid this consequence by structuring money so that it does not count against the receipt of governmental benefits. Because trust assets are technically owned by the trustee and not the beneficiary, they are not considered by Medicaid and the SSA.
In order to maintain a special needs trust that avoids government penalties, you will want to take steps to make sure the trust is set up properly, including:
- Identifying and appointing an independent trustee
- Using distributions from the trust to supplement governmental income rather than replace it
- Pay medical bills and other expenses directly from the trust rather than paying the money to the beneficiary first
- Ideally creating the trust with the assets of another, rather than the beneficiary’s own assets
Because the trust cannot be the considered the property of the beneficiary, it is very important that any trust assets be used to purchase goods, services, or basic necessities for the beneficiary, which can then be passed along to the beneficiary. The beneficiary should not use the funds to purchase these things themselves.
Let Blado Kiger Bolan, P.S., Help You Structure Your Estate To Accommodate Special Needs
If you have a special needs child, sibling, or close friend and you are concerned about their long-term support and well-being, you may want to consider adding a special needs trust to your estate planning goals. At Blado Kiger Bolan, P.S., our estate planning attorneys can walk you through the trust process and answer any questions you might have about protecting your loved one. For more information contact us online or at 253-272-2997.
