Providing Financial Support for Your Loved One Without Jeopardizing Government Benefits
What do you think of when you hear the words “trust” or “trust fund”? If you’re like many people, your first thought may be of a very wealthy family – one that would use “sophisticated” financial accounts/tools to pass its wealth down from one generation to another. While it’s true that they are often established by extremely wealthy people, trusts/trust funds are becoming more commonly used by people across a wide range of economic backgrounds/conditions.
A trust is essentially a legal arrangement between three parties – the “donor” is the person who supplies the funds or other assets; the “trustee” is responsible for holding the funds/assets and disbursing them according to the donor’s wishes to the “beneficiary,” who is the person who ultimately receives the funds/assets.
What is a Special Needs Trust?
A special needs trust, also known as a “supplemental needs trust,” is a special type of trust established specifically for the benefit of a person intellectual or development disabilities (the beneficiary). It is designed to manage and disburse funds/assets to that person without compromising his/her access to important government benefits to which they are entitled because of their special needs.
The funds from a special needs trusts can be used to purchase a wide variety of goods and services not covered the government benefit programs, including medical care, phones and computers, assistive devices, even trips and activities. Without a special needs trust in place, having access to certain funds/assets might otherwise disqualify the person with special needs from receiving government benefits.
There are three main types of special needs trusts:
- A “first party” special needs trust holds assets that belong to the person with special needs, such as a family inheritance or perhaps the proceeds from an accident or other legal settlement.
- A “third party” special needs trust holds the assets of other people – “donors” – who want to help and support the person with special needs.
- A “pooled” special needs trust holds assets from a number of different beneficiaries. Usually set up by a non-profit organization, this type of special needs trust allows multiple beneficiaries to pool their assets to achieve higher investment returns, while maintaining separate accounts for each beneficiary’s needs.
What are the benefits of a Special Needs Trust?
- A special needs trust provides a source of funds to meet the needs of an individual with I/DD without jeopardizing the vital benefits he/she receives from Medicaid and SSI (Supplemental Security Income), which have eligibility limits on an individual’s earnings and assets.
- It also enables families to provide on-going support to an individual with I/DD even after his/her parents or caregivers have passed away.
How are the funds in a Special Needs Trust managed?
For a “first party” or “third party” special needs trust you’ll need to identify the “trustee” – the person who’ll be responsible for managing and disbursing the money. It’s important that the trustee maintain a knowledge of federal and state laws and tax codes that apply to public benefits and trusts. The role of trustee could be filled by:
- A trusted family member or friend who has been involved in helping the person with I/DD make financial decisions.
- A professional trustee – a business professional who will manage and disburse the funds.
How do you set up a Special Need’s Trust?
You do not necessarily need a lawyer to set up a basic special needs trust, but most people feel more comfortable having a legal or financial professional involved. If you don’t have an attorney or a Certified Financial Planner who you’ve worked with in the past, reach out to one who has expertise in “estate planning.”