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What is a special needs trust?

On Behalf of | Dec 2, 2021 | Estate Planning

You may have a family member with a disability who relies on you for financial support. If so, you have an obligation to provide for this person following your death.

However, this can be a complex situation. The individual may also receive public benefits, and receiving his or her inheritance in a lump sum may affect his or her eligibility. Creating a special needs trust allows your family member to continue to receive financial support following your death without affecting his or her eligibility for public benefits.

What are the advantages of a special needs trust?

According to the American College of Trust and Estate Counsel, people who receive Medicaid and other public benefits must pass a means test to qualify. If their monetary resources exceed a certain level, they are no longer eligible for benefits, yet they may not have sufficient resources to provide for basic needs. When you create a special needs trust for a disabled family member, it does not affect his or her eligibility for public benefits because the trust owns the assets prior to distribution. This also prevents your loved one from spending his or her inheritance all at once.

How does a special needs trust work?

According to the National Paralegal College, you must choose a trustee who is in charge of managing the funds in the trust and distributing them according to your specifications. You must also state that the trustee can only use the funds for expenses that public benefits do not cover, such as travel, entertainment or education.

It is also possible for you to create a trust on behalf of a disabled child with money already belonging to him or her, such as a personal injury settlement. This is an even more complex situation.