Supplemental or special needs trust are a valuable tool in estate planning. Among other benefits, they are a great way to assist in caring for a disabled loved one without harming their ability to qualify for public benefits programs.
If one isn’t careful, giving gifts or leaving an inheritance to a special needs relative may disqualify them from participating in government programs such as Supplemental Security Income, Medicaid, subsidized housing.
Special needs trusts are typically set up for the purpose of leaving assets to individuals with some type of disability It could be a mental or physical disorder or a long-term illness that prevents them from caring for or supporting themselves.
A supplemental needs trust can serve the function of an asset-holder for disables persons, which allows them to receive benefits from the trust without having those assets disqualify them from public benefits. While such a trust does not provide the disabled or ill person basic support, it does provide supplemental support. This includes items that will not be paid for by public assistance programs, like education, certain medical expenses, or special equipment. Special needs trusts also have the advantage of preventing creditors from suing the trust’s beneficiary, allowing the trust funds to be protected from the beneficiary’s liability.
In terms of selecting a trustee, parents, guardians, and others family members are not always allowed to act as trustees, because of the concern that they may choose not to make distributions from the trust in hopes of inheriting the remains.
Different public programs have different rules for who is allowed to place assets in a special needs trust. Some programs will not disqualify a disabled or ill person if they place assets in the trust for their own benefit, but others will.
Specific laws and requirements regarding supplemental needs trusts vary state to state, and it is smart to work with an attorney who understands your unique situation when engaging in estate planning. Doing so will ensure that your goals are accomplished in the most efficient and thorough way possible.
Source: Forbes, “Financial Planning for Special Needs Relatives,” Laura Dogu, 12 June 2011.