What is a Special Needs Trust and Who Needs One?
Disclaimer: This blog is for explanatory purposes only. It is not to be considered legal advice. Speak with a qualified attorney specializing in special needs planning and trust administration to learn if a special needs trust suits your situation.
When looking for long-term care for a family member or friend with disabilities, a special needs trust can help. A special needs trust provides financial support now and into the future without jeopardizing eligibility for government benefits like Medicaid and Social Security Income (SSI). A trust also ensures that the money you provide them is then used appropriately and for the benefit of the beneficiary.
What Is A Special Needs Trust (SNT)?
A special needs trust is a type of trust designed for people with cognitive, physical, or developmental disabilities. A trust is a formal legal arrangement that allows a trustee to hold financial assets on behalf of a beneficiary.
Special needs trusts are designed to cover needs and expenses not covered by government support. A special needs trust is set up by a donor and is provided to a beneficiary. You can also consider a supplemental needs trust to help provide supplement support beyond public benefits.
There are three different types of special needs trusts.
The first type is first-party trusts, which are funded by the beneficiary through inheritance or a lawsuit settlement. The second type is a third-party trust, which is funded by someone other than the beneficiary, like a parent or dear friend. Both types of special needs trust ensure that the loved one is provided for financially. To set up a special needs trust, speak with an attorney to ensure the trust is properly created and administered.
Finally, the third type is a trust pooled special needs trust that is managed by a nonprofit organization. A pooled trust combines the assets of multiple individuals with disabilities. Then each person has their own sub-account. An attorney can provide guidance on what type of trust is best for your situation.
Who Qualifies For A Special Needs Trust?
Special needs trusts can be established for people under the retirement age of 65, as long as they have a qualifying disability or special need including:
- People with intellectual and developmental disabilities
- People with physical disabilities
- People with chronic illnesses
- People with a special need that affects their daily living and requires long-term care
They also must be a citizen or legal resident of the United States. Consult with an attorney to understand what is a special needs trust and to ensure that your loved one is eligible for a special needs trust.
How Do Special Needs Trusts Provide Assistance?
Special needs trusts provide assistance to people with special needs by providing access to financial support and resources. These can be used to help meet their daily care needs and live a higher quality of life than what government benefits alone would provide including:
- Medical And Dental Expenses: medical care that is not covered by insurance, as well as covering deductibles, copays, and out-of-pocket expenses.
- Rehabilitation And Therapy: cover rehabilitation and therapy treatments not covered by insurance, including alternative treatments.
- Housing: housing costs, including rent or mortgages, property taxes, property insurance, and utilities.
- Transportation: vehicle, vehicle modifications, and transportation services.
- Education: education and training programs to help develop new skills or pursue a career.
- Assistive Devices: assistive devices and technology like wheelchairs, hearing aids, and communication devices.
- Personal Care: personal care like oral, skin, and hair care products.
- Recreation: recreation like travel and hobbies that improve their quality of life.
- Legal Fees: legal fees for the trust and any occurred from other circumstances.
When properly established by an attorney, a special needs trust can provide the care and support your loved one needs and help them live a higher quality of life with less financial worry.
Why Should You Consider A Special Needs Trust?
There are many reasons you should consider setting up a special needs trust, including:
- Protecting government benefits
- Providing long-term financial support
- Improving the quality of life of your loved one
- Reducing caregiver burden
- Avoiding probate
Who can create a special needs trust? Anyone can create one as long as they meet the legal requirements. To understand more about how a special needs trust can benefit your situation, speak with an attorney.
What Is The Process To Obtain A Special Needs Trust?
To establish a special needs trust, you will speak with a special needs trust attorney. The process is multi-stage and usually involves:
- Determining the type of trust that would most benefit the individual’s situation.
- Selecting a trustee to manage the trust and protect the beneficiary.
- Establishing the trust by preparing all the necessary legal documents.
- Funding the trust by placing assets, investments, and other property into the trust.
- Administer and manage the trust, making distributions to the beneficiary as needed.
Always work with an attorney that specializes in special needs planning. This will ensure the trust is properly established and administered, protecting your loved one.
Further, an attorney will provide guidance on how to manage the trust in compliance with regulations so they don’t lose their government benefits.
What Are The Advantages And Disadvantages Of A Special Needs Trust?
Special needs trust has both advantages and disadvantages. Understanding these will help you understand if a special needs trust is the right solution for your needs.
Advantages of a special needs trust
- Protects government benefits
- Provides long-term financial assistance
- Offers a higher quality of life than government benefits alone
- Reducing the cost and burden to caregivers
- Helps avoid probate after a caregiver passes
Disadvantages of a special needs trust
- Setting up, managing, and administering a special needs trust can be costly
- Special needs trusts are legal and financially complex
- There are certain legal limits on the use of funds
- Once the trust is established, it is irrevocable
- There may be tax implications for the donor and the beneficiary
To understand if the advantages outweigh the disadvantages in your unique circumstances, speak with an attorney. They will provide all the guidance needed to understand if a special needs trust is right for your circumstance. An attorney will also help you set up the trust and ensure its proper administration.
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