Special Needs Trust: How to Plan for Special Needs Family Members after You're Gone

Special Needs Trust: How to Plan for Special Needs Family Members after You’re Gone

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To help with your special needs trust, talk to an attorney.  A lawyer will help you set up a trust for your loved one.  Then, your loved one will not risk losing government benefits.  These benefits often come in the form of Supplemental Security Income (SSI) or Medicaid.

Cash = No Benefits

Do not simply leave a large amount of cash for your loved one.  This will disqualify them from receiving benefits like Medicaid or SSI.  On the other hand, owning a car, house, or furnishings does not affect benefits.  You might be asking, “How could I possibly not leave cash?”  The answer lies in what is called a special needs trust, or supplemental needs trust.  Instead of leaving monetary assets with your loved one, you move the assets to a special needs trust.  Thus, your loved one is still eligible for benefits.

Choose a Trustee (Wisely)

In setting up a special needs trust, you must choose a trustee to preside over the assets.  This person will have complete control over the trust property.  The trustee will have the power to spend money on behalf of your loved one.

Since your loved one has no control over the trust, they remain eligible for benefits like SSI and Medicaid.  However, under SSI and Medicaid eligibility policy, the trustee may not give money directly to the beneficiary.  This is a good example of why you should choose your fund’s trustee wisely.  Trustees must be aware of what they can and cannot do.  Lacking this awareness can completely compromise the reason for starting a special needs trust.

The trustee is allowed to purchase goods or services for the beneficiary.  These often include medical expenses, physical care attendants, recreation, education, and more.

When Does a Special Needs Trust End?

A special needs trust ends when either the funds have been completely spent, or the beneficiary of the trust has died.

Pooled Trusts

Consider establishing a pooled trust if either of the following applies to your situation:

  1. You cannot come up with an appropriate trustee
  2. You are leaving a modest fund

Non-profit organizations run pooled trusts.  Basically, the non-profit gathers funds from many families.  You can set up your loved one to be a beneficiary of a pooled trust.  The non-profit will choose a trustee for your loved one.  This trustee will be responsible for spending money on your loved one.

Pooled trusts are also called community trusts.  They are available all over the country.

Do You Need a Lawyer?

The answer is, yes.  It is true that you can set up a special needs trust without a lawyer.  However, doing so can create risk.  You might not be aware of complex legal details particular to your situation.  For instance, are you using some of the beneficiary’s money to start the trust?  If so, a whole separate list of state-specific rules come into play.

Each special needs trust is different.  If your trust varies even slightly from the textbook fund, you should seek legal assistance.  Failure to cover your bases might jeopardize your loved one’s financial future.

Setting Up the Trust

With the help of a lawyer, you first need to create the trust document.  As you are setting up the trust, you are the “grantor” or “settlor” according to the document.  As aforementioned, you are placing assets in the hands of another individual, the “trustee”.

In most cases, the grantor names himself or herself a trustee, in addition to one other person.  The grantor presides over the trust until they die.  Then, the other person takes over.

Enacting the Trust

Once you sign and notarize the trust, it is in effect.  Obtain the trust’s tax ID number from the IRS, and open a bank account with a small starting deposit.  Now, the trust is ready for funding!  Anyone who wants to help support the beneficiary can fund the trust.  This can be done through wills or other estate planning maneuvers.

Who Can Give Property to the Trust?

Anyone besides the beneficiary can provide assets to the trust.  Plus, any number of special needs trusts can be set up for the same beneficiary.  Moreover, any type of property can be placed in the trust.  This includes real estate, businesses, patents, stocks, etc.

Turning Property Into Cash

The primary duty of the trustee is to use the funds to purchase things for the beneficiary that SSI or Medicaid do not provide.  Hence, non-cash properties are not always helpful within a trust.  As a result, most special needs trusts give trustees authority to sell non-cash assets for cash.

More Responsibilities for the Trustee

In addition to the above, the trustee should manage taxes and invest trust property.  Of course, the trustee’s main duty is to keep up to speed with the beneficiary’s needs.  Once again, it is very important that you choose an appropriate trustee.  He or she will have many responsibilities.

An attorney can help you set up a special needs trust in your will.  This way, your disabled loved one will not miss out on government benefits.  Make the smart move and set up a special needs trust.  You can greatly improve the quality of life of your loved one!