One of the big reasons to make use of special needs trusts is to ensure that disabled individuals can continue to receive government benefits, such as Supplemental Security Income and Medicaid. Because one cannot have more than $2,000 in personal assets in one’s name in order to qualify for these programs, there isn’t much wiggle room to provide disabled children with assets directly without compromising their ability to qualify for government support.
The rules for special needs trusts vary from state to state, but essential to any such arrangement is a trustee who will oversee funds. Special needs trusts are often funded by gifting assets directly to the trust. Another possibility is to name the trust as beneficiary of a life insurance policy.
Income from special needs trusts cannot be paid directly to the disabled individual, but the trustee can be given discretion to pay for things like travel and entertainment. In any case, the needs of the person can be adequately addressed without compromising their ability to receive government benefits.
Special needs trusts also protect a disabled family member from creditors, another important consideration to keep in mind.
Because these trusts require special language to adequately prevent the government from invading trust assets. A poorly written trust can result in loss of benefits and savings, as well as financial and legal difficulties for both the beneficiary and the Trustee. So it is important to work closely with an experienced attorney in fashioning these instruments.
Source: Coshocton Tribune, “Special Needs Trusts needed in some situations,” November 18, 2012