A special needs trust holds and protects financial assets or receives funds that a disabled beneficiary may receive in the future.
The special needs trust, sometimes referred to as a supplemental needs trust, is a legal structure that manages the assets and may receive contributions from a variety of sources during the lifetime of the beneficiary, according to WTOP’s recent article, “5 reasons to consider a special needs trust.” A special needs trust can also be created to receive assets from a legal settlement, when the recipient is a minor.
Other special needs trusts are part of an estate plan, when family members want to provide assets or life insurance proceeds at their own death as an inheritance for someone with special needs. If you’re not clear about a need for a special needs trust, talk with an elder care or trusts attorney to review your specific situation. In the meantime, here are some common uses:
Reserving assets for support during your life or at your death. Trusts are typically intended to provide a legal way to title and hold assets to be used to help beneficiaries. This trust is used to benefit someone who has physical or mental disabilities. A special needs trust can be used to provide for a variety of needs and the initial trust language specifies the donor’s intended use of the funds.
Designating a trustee. A major benefit of a trust is the ability to appoint a trustee to manage investment decisions and oversee the distribution of the trust assets. With a beneficiary who’s unable to manage finances independently, the trustee can safeguard the assets and administer spending decisions. The trustee must also ensure that the trust assets are used pursuant to the initial intentions.
Maintaining a disabled person’s aid from a government program. It’s not uncommon for a well-meaning family member to err and name the disabled family member as a beneficiary in their will. This could actually disadvantage the individual, by disrupting the aid they receive from the government. Many government programs have income requirements that cannot be exceeded. To protect the beneficiary, grantors can direct the intended inheritance or life insurance benefits to the special needs trust. This won’t jeopardize government income or other services that may be their sole source of support.
Preserving family wealth. This trust structure can create a way to provide assets, while limiting their use. A special needs trust also helps ensure that wealth is allocated properly.
If any of these situations apply to your family, think about creating a special needs trust during your lifetime. You can also wait to change your estate plan to establish the trust upon your death.
You’ll want to work with an attorney who has experience with special needs trusts, since there are tax and estate planning considerations that need to be considered.
Reference: WTOP (October 25, 2018) “5 reasons to consider a special needs trust”