Establishing a financial future for your loved one with special needs can be an enormous task. There are numerous components to consider, including the level of care your family member will require, the degree of independence you want them to have, and whether they will be eligible for various types of government benefits, such as federal programs like Supplemental Security Income (SSI) and Medicaid. Families want to know how to create long-term financial security for the person with the disability without jeopardizing that individual’s eligibility for these assistance programs. Special Needs Trusts (SNTs) are one way that families can accomplish this. SNTs are designed specifically to provide an individual with a disability with additional resources while preserving them for future use by the beneficiary.
Understanding What a Special Needs Trust Is
A special needs trust is a legal document that establishes a separate entity to hold and manage assets for the benefit of the individual with a disability. The primary purpose of the special needs trust is to allow the beneficiary of the trust to receive additional income without directly owning the underlying assets, thus maintaining eligibility for various government assistance programs that are means-tested. Instead of giving the individual cash directly, which may disqualify them for assistance provided by government programs, the cash is deposited into the special needs trust and can be distributed to the beneficiary on a pre-determined basis. The special needs trustee has complete discretion over how to spend the trust assets to benefit the beneficiary, thereby providing the full benefit of the cash while also ensuring that it will be helpful to increase the quality of life for that person in the future.
Types of Special Needs Trusts
There are many ways of making a special needs trust, so you will need to look at which best suits your family situation. An example will be a first-party special needs trust, which is said to be funded with resources that belong to the beneficiary, usually from money received as a result of a legal settlement or from an inheritance. In contrast, a third-party special needs trust is funded by the parents, relatives, and/or friends of the beneficiary. In addition to first- and third-party special needs trusts, some states offer pooled special needs trusts: they are trusts that combine all resources into one accord, but the actual money allocated to each individual is kept separate. Each has its own governing rules, especially regarding how the money will be distributed to the beneficiary when they die. Therefore, it is very important to choose the most correct type of trust.
Preserving Government Benefits
The most significant reason for establishing a special needs trust is to preserve access to government benefits for the beneficiary. For example, both SSI and Medicaid have very strict limits on the income and assets that an individual can have at any given time. Even a modest sum of money given as a gift could cause the beneficiary to lose their eligibility for those programs. Creating a properly structured, third-party special needs trust for your loved one means that the funds from that trust will not be included as part of the beneficiary’s personal assets, so they would not affect the best benefit. In addition, the third-party special needs trust could pay for what is referred to as supplemental needs, including, but not limited to, education, therapy, travel, and/or personal care services, thereby allowing your family to provide a better quality of life to your loved one without jeopardizing their ability to receive medical care or financial assistance.
Choosing the Right Trustee
Trustees are vital participants in administering trusts by determining how to operate the trust and how to serve the needs of the beneficiaries. The trustee is typically responsible for all aspects of trust administration, such as managing trustee investment portfolios, making distributions to beneficiaries, and ensuring compliance with all applicable legal and regulatory requirements. When selecting a trustee, most families will select a family member, a fiduciary (such as an accountant), or a trust company. Ideally, the trustee selected should have a good reputation for being fiscally responsible, be detail-oriented in conducting their duties, and be trusted to act in accordance with the personal needs of the beneficiary. Some families use co-trustees to combine personal knowledge and professional experience to ensure the trust beneficiary is served properly.
Final Thoughts
Special needs trusts can provide an essential avenue for families who have loved ones with disabilities to achieve comprehensive financial planning. Special needs financial planning in Sherman, TX, can protect and preserve assets so that the individual with a disability remains eligible for crucial government benefits and can improve the general quality of life for those individuals. Although setting up a special needs trust might appear simple, it has many long-term benefits resulting from the long-term effort involved in establishing it. Adequate assistance and careful planning allow families to establish a protected future that provides for fiscal stability as well as compassion and care.
