What You Need to Know About Special Needs Trusts

A special needs trust (SNT) is a vital estate planning tool that allows individuals to support loved ones with disabilities without jeopardizing their eligibility for government benefits. By understanding how these trusts function, how they are funded, and their limitations, families can secure a stable future for their disabled family members.

Protecting Benefits with a Special Needs Trust

Individuals with disabilities often rely on programs like Medicaid or Supplemental Security Income (SSI) for financial support. These benefits come with strict limits on income and assets. Exceeding these limits can lead to disqualification. An SNT addresses this issue by keeping assets separate from the disabled individual’s personal funds.

An estate planning attorney creates the trust, naming a trustee to manage the assets. The trust can cover expenses like housing, transportation, education, and healthcare that government benefits may not provide.

Funding a Special Needs Trust

Some families choose to delay funding the trust until necessary, as its use becomes restricted once assets are deposited. Parents should also ensure that other family members, such as grandparents, avoid leaving assets directly to the disabled person. Instead, they can fund the SNT created by the parents or set up their own.

Types of Special Needs Trusts

1. Third-Party Special Needs Trust:
   Created by a parent or other individual, this trust benefits a disabled loved one using assets that do not belong to the disabled person. Upon the trust beneficiary’s death, any remaining assets can be distributed to other family members or donated to a charity.
2. First-Party Special Needs Trust:
   This trust is created to hold the disabled individual’s own assets, such as a legal settlement or inheritance. It ensures continued eligibility for government benefits. However, any remaining funds after the beneficiary’s death must reimburse the government for care provided through Medicaid.

Essential Legal Documents

Families planning for a disabled loved one should also prepare these critical documents:

• Will: Ensures that assets are transferred into the SNT upon the parents’ passing.
• Power of Attorney: Authorizes someone to handle financial matters on the parents’ behalf if they become incapacitated.
• Medical Power of Attorney: Appoints someone to make healthcare decisions in case of incapacity.

Beneficiary Designations

Beneficiary designations on accounts like life insurance policies must direct assets to the SNT instead of the individual. This step protects the disabled loved one’s eligibility for Medicaid and SSI.

Peace of Mind for the Future

Special needs trusts provide families with reassurance, knowing their loved one’s future is secure. While they can't solve every challenge, they prevent financial complications and preserve essential benefits.

If you're considering a special needs trust or need guidance with estate planning, The Werner Law Firm can help. Our experienced trust attorneys work with families to create personalized plans that protect their loved ones and ensure compliance with complex legal requirements.

If you have any questions, schedule a free appointment with us through our online appointment page.

You can also read reviews from some of the hundreds of clients we have helped over the years.

Reference: Success (Oct. 20, 2024) “What Is a Special Needs Trust?”