Caring for a loved one with a disability or extra needs is wrought with many challenges. One of these challenges can be how to leave assets to this beloved after your death in such a way that does not disqualify them from the governmental benefits to which they are entitled. A “special needs trust” can be one solution to this problem.
Funding Special Needs Trusts
Sometimes called a supplemental needs trust, a special needs trust is established for the benefit of a person with special needs to help him or her financially after your death. Usually established by parents for their disabled children or by children for their elderly parents, it is a vehicle by which to leave money or property behind without giving direct control over the assets. In this manner, the value of the assets in trust can be excluded from being considered in federal or state means-tested benefits of the beneficiary, thus allowing them to still receive such items as Supplemental Security Income (SSI) or Medicaid.
Several kinds of assets such as cash, real estate, business interests, stocks or intangible assets can be held in a special needs trust. Property belonging to the beneficiary can be used to fund the trust or assets from another party can be used instead, but both sources of assets should not fund the same trust, meaning there can be more than one special needs trust established for someone.
Improving Quality of Life
Collectively, these assets are used by the trustee(s) (who cannot be the beneficiary) to fund expenses that improve the quality of life for the beneficiary and that are not already covered by existing government benefits. Some examples of such expenses include:
- Additional caregiving or personal therapy, including visits to or expenses of a companion
- Reasonable expenses for experiences such as travel and visits to relatives or entertainment
- Costs for special transportation
- Personal items
The trust would pay for such expenses directly rather than the beneficiary receiving cash to pay for these expenses him or herself, which might jeopardize benefits.
Finally, a special needs trust has a finite life. It will terminate either when the funds in the trust are depleted, the beneficiary no longer needs the trust, or the beneficiary passes away.
Other Options
Note that there are other avenues by which to give assets or the use of assets to your disabled loved one, one of them being a 529-ABLE plan administered by each state. However, with those plans there are limitations on the annual contribution to the plan and the total value the plan can achieve.
If you are considering one of these vehicles to improve the quality of life of someone in your life with special needs, please contact us so we can help you get started.
