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Special Needs Trusts

Taking care of special needs family members is tough enough, however, it gets even more complicated figuring out how to care for them when you are gone. While you can bequest money and assets to those with special needs, sometimes bequests can prevent them from qualifying for essential government benefits under the Supplemental Security Income (SSI) and Medicaid programs. Since public money can only be used for food, housing and clothing, that doesn't allow your loved one to live a full life. So how do you pass on assets that will allow a special needs family member to create a rich quality of life? The answer is a trust – a Special Needs or Supplemental Needs Trust.

What is a Special Needs Trust?

A Special Needs Trust is designed to benefit a person with a disability, while protecting essential government benefits. It is most often a “stand alone” document, but can most certainly for a part of a Last Will and Testament. It can hold an unlimited amount of assets in the name of the disabled individual to improve the quality of life.

When should I Establish a Special Needs Trust?

A Special Needs Trust should be established no later than the beneficiary's 65th birthday; however, if you have a disabled or chronically ill family member, you may want to consider establishing the trust for them at an early age. The advantage is that fund received as gifts, from other bequests or settlements can immediately be transferred to the trust without affecting eligibility for government benefits.

Who can establish a Special Needs Trust?

Any third party can establish a special needs trust for the benefits of a disabled beneficiary, although the most common is typically established by parents for their disabled children. Because this can be a complicated process, we strongly recommend you seek a competent attorney with years of experience to establish a Special Needs Trust. A poorly drafted trust can easily disqualify a loved one for government benefits.

Who should I select as a trustee?

Just like any other trust, you'll need to select a trustee to look after the trust — a person you are certain will be in charge of spending the money on your loved one's behalf and do so wisely and fairly. The person you choose must be absolutely trustworthy because your loved one will have no control over the money, and possibly not the mental capabilities to understand the complexities if they needed to. So choose wisely. You might even consider several trustees, who can make decisions jointly and provide a system of checks and balances.

How can the trust fund money be spent?

The assets or money in a trust cannot go directly to the disabled person, so the trustee must spend assets to buy goods and services for the trustee. For example: money can be used to pay for caregivers, physical rehabilitation, home furnishings, education, recreation and vacations, vehicles and more.

Do I still need to establish trust if I have wealth?

Yes, you should still establish a Special Needs Trust to protect your special needs family member or friend from potential creditors. For example, a special needs person can be sued for personal injury, however, with a trust, the funds are protected from legal action. The assets in a trust are not counted as available assets for determining government benefit eligibility and that money can be used for supplemental expenditures to allow your disabled beneficiary to enjoy a high quality of life.

Will you need an attorney?

The simple answer is YES. Setting up a special needs trust is complicated, especially if the trust is funded by a settlement or from a personal lawsuit injury. If a trust is structured incorrectly, it can mean that a loved one would lose valuable government assistance, so don't take chances.

In addition, there are three types of Special Needs Trusts. A “first-party” special needs trust holds assets that belong to the person with special needs, such as an inheritance or an accident settlement. A “third-party” special needs trust holds funds belonging to other people who want to help the person with special needs. A pooled trust holds funds from many different beneficiaries with special needs. There are three trusts because of the specific regulations regarding Supplemental Security Income (SSI) and each type of trust deals with the various possibilities.

In short, an attorney experienced in Special Needs Trusts can make life much easier for you and help you negotiate all the red tape.

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