What is a Special Needs Trust?
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A special needs trust is also sometimes known as a supplemental needs trust. This is an important estate planning tool if you have a family member with a disability.
Why Consider a Special Needs TrustSpecial needs trusts are important for three reasons. First, your disabled family member may be eligible for government benefits during his or her lifetime. The most common is supplemental security income (SSI), which is only available to people below a certain income and asset level. A special needs trust is an irrevocable trust that allows you to give them money or assets without threatening their eligibility for government programs.
A second reason is that your family member may have unique needs that a simple bequest will not address. You can design the trust so that the trust assets are managed according to those specific needs. Third, you may be concerned about assets being reached by creditors or an ex-spouse. Particular if your family has mental disabilities, you may have concerns about his or her ability to exercise good judgment in all circumstances. A special needs trust can help protect those assets and make sure they remain intact for your family member's benefit. Types of Special Needs TrustsThe most commonly used kind of special needs trust is a third party special needs trust. This is where you as the third party can put assets into the trust to be managed by the trustee. If set up properly, it will not count against their benefits. You can also specify what happens to the assets after the beneficiary passes.
An example would be a family with a special needs child and two other children. You can specify that assets in the trust go to your special needs child's children if there are any. You can also specify that the trust assets should distribute to your other two children after the beneficiary passes. Another kind of special needs trust is a first party special needs trust. These are often established when a disabled person receives a large amount of money from an outside source. This can be a settlement of a personal injury suit or an employment discrimination suit, or even lottery proceeds. This kind of trust operates during his or her lifetime like the third party trust. The main difference is that the government may have a claim to the trust assets after the beneficiary's death if he or she was receiving government benefits. |
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Funding a Special Needs Trust
A trust is simply a container to hold assets. This means you can put assets in it when you create the trust or any time after, including in your own will.
Most often the main concern for parents is making sure the child is taken care of after they pass. In this case you can create the trust and direct assets to it in your will. This gives you maximum flexibility with your own assets during your lifetime but still takes care of your child.
If your child has reached adulthood and is living independently or semi-independently, you might consider placing some assets into the trust right away. By establishing a special needs trust and activating the trust while you are alive, both your child and the trustee can get used to working with each other. This may give you some additional peace of mind in your own planning.
Most often the main concern for parents is making sure the child is taken care of after they pass. In this case you can create the trust and direct assets to it in your will. This gives you maximum flexibility with your own assets during your lifetime but still takes care of your child.
If your child has reached adulthood and is living independently or semi-independently, you might consider placing some assets into the trust right away. By establishing a special needs trust and activating the trust while you are alive, both your child and the trustee can get used to working with each other. This may give you some additional peace of mind in your own planning.
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Jenna Ordway
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