What is a Special Needs Trust?
Special needs trusts are a legal arrangement and trustee relationship enabling a physically and/or mentally debilitated or constantly ailing individual to receive income without decreasing their qualification for the public assistance disability benefits given by Supplemental Security Income, Social Security, Medicaid, or Medicare. In trustee relationships, an individual or individuals acts on behalf of another individual or individuals for the management of assets.
A special needs trust is a favorable approach for those that want to assist someone in need without taking the chance that the individual is going to lose their qualification for programs that necessitate their income or assets to stay below a specific limit.
- A special needs trust is a legal arrangement that enables a physically and/or mentally ill individual, or someone chronically debilitated, have access to funding without possibly forfeiting the benefits offered by public assistance programs.
- This trust enables for the added financial support of an individual having special needs, without risking taking them out of candidacy for disability benefits.
- Public assistance programs established for individuals with special needs are based on specific income and asset limitations; capital put into the trust does not count towards the purpose of being eligible for public assistance.
How a Special Needs Trust Works
A special needs trust is going to cover the portion of an individual’s financial requirements that aren’t covered by public assistance payments. The assets kept in the trust don’t count for the grounds of qualifying for public assistance, provided that they aren’t used for certain food or shelter expenses. Proceeds from this kind of trust are generally used for medical expenses, payments for caregivers, transportation expenses, and other authorized expenses.
The party that devises the trust is going to name a trustee that will have management over the trust. This trustee is also going to monitor its management and the disbursal of funds. Assets initially owned by the disabled individual that gets placed into the trust could be subject to Medicaid’s repayment regulations, but assets provided by 3rd parties like parents are not. This kind of trust is occasionally also referred to as a “supplemental needs trust.”
Special needs trusts are irrevocable trusts—neither creditors or the victor of a lawsuit are able to access funds specified for the beneficiary.
Benefits of a Special Needs Trust
Setting up a special needs trust could have benefits for each of the parties involved. The beneficiary has a way to get financial support devoid of putting their qualification for income-restricted programs or services at risk. In the meantime, the individual or party that devises the trust has some comfort that the proceeds are going to go to expenses they specify.
When a 3rd party places capital in a special needs trust, the party is confident that the capital is going to be used for its intentional purpose. For instance, parents might place assets in a special needs trust to provide for their debilitated son instead of giving that money to their daughter. Special needs trusts are a type of irrevocable trust, and their assets are unable to be appropriated by creditors or by a victor of a lawsuit.
It is vital that the individual that devises the trust or their attorney word the conditions of the trust documents very carefully to guarantee its validity, and to validated that the instructions and purpose of the trust are unequivocally clear. The special needs trust is required be established prior to the beneficiary turning 65.
Source:
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Kagan, J. (2021, May 19). Special needs trust. Investopedia. Retrieved October 12, 2021, from https://www.investopedia.com/terms/s/special-needs-trust.asp.
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