If you wish to provide for a loved one with special needs or a disability in your estate plan, there are certain rules that must be followed so they are not prevented from receiving public benefits. Creating a special needs trust can help ensure your beneficiary is cared for after your passing — and they receive the inheritance you wish for them to have. It’s important to understand the different kinds of special needs trusts that can be created and what types of expenses they can cover.
Also referred to as a supplemental trust, a special needs trust is a type of trust that is used to hold assets for a loved one with a disability. Importantly, these trusts are set up in a way that still allows them to qualify to receive financial assistance from government programs, such as Supplemental Security Income (SSI) and Medicaid. Instead of bequeathing your property directly to your loved one, you would place it in the trust so that they are not considered as part of their assets. The purpose of a special needs trust is to provide your loved one with funds that will help to enhance their quality of life.
There are three types of special needs trusts, including:
The amount of money you leave in the trust can depend upon several factors, including whether you have other family members you wish to provide for and your loved one’s specific needs.
There are certain rules that must be followed when it comes to how the funds in a special needs trust can be spent. For instance, they cannot be used to provide for food, housing, utilities, or other “basic support.” This could result in a loss or reduction of public assistance benefits. (However, it should be noted that there have been recent changes to the law with respect to special needs trusts and the ability to use funds to pay for food and rent.) Rather, the funds can be used to pay for things that go beyond the basic necessities.
The funds in a special needs trust can be used to pay for the following:
The rules that cover special needs trusts can be complex — and it’s crucial to know what funds the special needs trust can be used to cover. It’s a good idea to consult with a knowledgeable special needs trust attorney who can help you set up the trust and ensure you avoid inadvertently impacting your beneficiary’s public benefits eligibility. An attorney can advise you regarding the tools that will meet your planning needs, whether it’s best for you to establish a special needs trust, create an ABLE account, or use another vehicle.
Special needs trusts are created like other types of trusts. First, a beneficiary must be designated who will receive the assets in the trust. Next, a trustee who will be responsible for managing and distributing the property in the trust must be appointed. The trust instrument is then drafted, which specifies how the funds in the trust can be used, how any income earned will be managed, and the trustee’s responsibilities.
Significantly, the trust must be funded in order for it to be effective — it can be funded with cash, investments, life insurance, real property, personal property, and other assets. Once the trust has been funded, it is irrevocable and the money can only be used to meet the needs of the beneficiary. A supplemental needs trust may either be funded upon the death of the grantor, or during their lifetime. It’s essential to discuss the best strategy in your case with an experienced special needs trust attorney.
If you are considering setting up special needs trusts, it’s important to consult with an experienced estate planning attorney. At Beaton & Kiers, our special needs trust attorneys take the time to understand your objectives and will work closely with you to meet your goals.
Located in Hampton, we work with clients throughout New Hampshire for their estate planning needs. To learn more about our estate planning and trust services, contact us at 603-238-6690 to schedule a consultation.
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