Do you have someone in your family with special needs who depends on you financially? If yes, then you will have to plan your estate in such a way that the person will be able to receive the support even when you are not there physically! Here lies the importance of a special needs trust. This is a trust which will help you leave money for that loved one who is disabled or has some special needs. Moreover, as the beneficiary doesn't own the asset, it won't have a negative impact on their SSI and Medicaid benefit. It should also be noted that anyone who qualifies as disabled under the Social Security Act can be named as beneficiary in a special needs trust.
Setting up a special needs trust
It is not very easy to set up a special needs trust on your own. So, it will be better if you could take professional help in this regard. It is the lawyer who will be able to assist you better to draft the document as per individual specifications and provide as much flexibility as the law provides. You will have to name a person as a trustee who will be in charge of managing the trust. It will be his or her responsibility to distribute the assets to the beneficiaries. You can either opt for a family member as the trustee or you can go for professional trustees. The trustee should know the beneficiary well.
How to fund a special needs trust
When you create a special needs trust, you will also have to determine the source of funds for it. Apart from your other monetary assets, you can include your life insurance and house in the trust. When you are no more, it can be liquidated to fund the special needs trust. Once it is funded, it will be the responsibility of the trustee to file tax returns on behalf of the trust. Managing the assets will also be a responsibility of the trustee and a potential operating cost. It should be noted here that the funds in the special needs trust may be utilized to pay for medical expenses not covered by SSI and Medicaid, vacations and entertainment, etc. for the concerned person. You may also attach an optional letter to the trust and direct it regarding utilization of funds.
Different types of special needs trust
Some of the types of special needs trust are listed below:
- Self-settled or first-party special needs trust: In this type of a trust, the funds come from the beneficiary's own assets. It can be from a gift or from a court settlement.
- Testamentary or third party trust: This document is drafted for future use and does not have any current funding.
- Pooled trust: This is a trust which is mainly designed for people with limited assets. The trust is taken care by a non-profit organisation. Many people, along with you, will put their funds together in this trust.
Hope now you have a clear idea about special needs trust!