What is a special needs trust?
A special needs trust, also known as a supplemental needs trust, is a legal tool designed to protect the assets of an individual with disabilities while allowing them to remain eligible for government benefits such as Medicaid and Supplemental Security Income (SSI). In this article, we will discuss what a special needs trust is, how it works, and who can benefit from it.
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What is a Special Needs Trust? A special needs trust is a legal arrangement in which a trustee holds assets on behalf of a person with disabilities. The trust is designed to provide for the beneficiary’s needs without jeopardizing their eligibility for government benefits. The trustee is responsible for managing the trust assets and using them to pay for expenses that are not covered by government benefits.
How Does a Special Needs Trust Work? A special needs trust can be created by an individual, a family member, or a court. The trust is funded with assets that can be used to provide for the beneficiary’s needs, such as a personal injury settlement, an inheritance, or a gift. The trustee is responsible for managing the assets and using them to pay for expenses that are not covered by government benefits, such as medical expenses, transportation, housing, education, and recreation.
One important feature of a special needs trust is that the trustee has broad discretion in deciding how to use the trust assets. This allows the trustee to tailor the trust to meet the specific needs of the beneficiary and to respond to changes in their circumstances over time.
Who Can Benefit from a Special Needs Trust? A special needs trust can benefit anyone with disabilities who is receiving or may receive government benefits such as Medicaid or SSI. These benefits are typically available only to individuals who have limited financial resources. If a person with disabilities receives a large settlement or inheritance, for example, they may become ineligible for government benefits.
A special needs trust can help preserve the beneficiary’s eligibility for government benefits while providing for their needs. It can also protect the beneficiary’s assets from creditors and other potential threats. In addition, a special needs trust can provide peace of mind for the beneficiary’s family, knowing that their loved one will be cared for even after they are no longer able to provide for them.
Types of Special Needs Trusts There are two main types of special needs trusts: first-party and third-party trusts.
A first-party special needs trust is funded with assets that belong to the beneficiary, such as a personal injury settlement or an inheritance. This type of trust is often used when the beneficiary receives a large settlement or inheritance that would make them ineligible for government benefits.
A third-party special needs trust is funded with assets that belong to someone other than the beneficiary, such as a family member. This type of trust is often used to provide for the beneficiary’s needs without jeopardizing their eligibility for government benefits.
In addition to these two main types of trusts, there are also pooled special needs trusts. Pooled trusts are managed by nonprofit organizations and allow multiple beneficiaries to pool their assets together for investment purposes. This can be a cost-effective way to manage a special needs trust for a small or modest amount of money.
Conclusion A special needs trust is a powerful tool that can help protect the assets of individuals with disabilities while allowing them to remain eligible for government benefits. It can provide for the beneficiary’s needs and protect their assets from creditors and other potential threats. If you or a loved one has disabilities and is receiving or may receive government benefits, a special needs trust may be an important part of your estate planning strategy. Contact a qualified estate planning attorney to discuss your options and determine whether a special needs trust is right for you.