Special needs trusts ensure that beneficiaries with disability continue receiving important government benefits after obtaining an inheritance from their family. Supplemental or special needs trust is designed for providing funds to a disabled person. This is while preserving the person’s eligibility for government benefits.
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What is a Special Needs Trust?
Special needs trust is used for providing benefits to a person with disability or special needs without affecting the federal or state benefits they receive. Typically, the trust is established by a guardian or parent with their child with special needs as the beneficiary. Sibling or another third-party trustee is given the authority to disburse assets on behalf of the beneficiary.
Benefits of a Special Needs Trust
People with disabilities require different kinds of lifelong help. In particular, paying for health insurance can become difficult. Disabled persons find it difficult to hold down a job that offers health insurance. Coverage under Medicaid becomes necessary for covering health expenses. The catch is that Medicaid benefits only those people that have limited resources and income.
If you leave assets your child, they may become ineligible for Medicaid benefits. Special needs trust ensures that assets are not directly left to the child. It allows the child to enjoy the benefits without losing their right to Medicaid. You can choose a trustee to control and disburse the assets as and when required.
How Does a Special Needs Trust Work?
Special needs trust is organized around three roles, like all trusts:
- Grantor or settlor that creates the trust for their wealth
- Beneficiary (or in this case the person with disability)
- Trustee or the person responsible for managing the trust in a way to benefit the beneficiary
A special needs trust can be set up while the parents are still alive. It can come into being on the death of parents. Typically, a close family friend or a sibling is chosen to serve as trustee.
Types of Special Needs Trusts
Third-Party Special Needs Trust is the most common type of special needs trust. This is also known as a Family Trust. The trust is funded by the beneficiary’s family members for ensuring that specific assets are kept aside for paying education, utility bills, entertainment, and other expenses. If the sole goal of setting up this trust is to preserve federal benefits, you should ensure the distributions are not made for medical expenses, shelter, or food.
These items are generally covered by government benefits. Special needs trust can be funded through a life insurance policy. Laws surrounding special needs trusts are significantly complex. The smallest error can cause the beneficiary or person with special needs to lose their federal and state government benefits. Having an attorney with experience can ensure the trust is rock solid.
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