Attorney
Caring for a loved one with disabilities means thinking about their future and how to ensure they’re supported, even when you’re not around. You might wonder how you can help provide for them financially without putting their government benefits at risk. That’s where a special needs trust (SNT) comes in. An SNT allows you to set aside funds for your loved one’s care while preserving their access to essential government benefits. In this blog, we’ll explore how special needs trusts work and how they can offer long-term peace of mind for your family.
How a Special Needs Trust Works
A special needs trust is designed to provide financial support for a loved one with disabilities while preserving their eligibility for government benefits such as Supplemental Security Income (SSI) and Medicaid. The trust holds assets like money or property, which are used for the benefit of your loved one. Because these assets are owned by the trust rather than the individual, they do not count against the strict financial limits set for these benefits.
In practice, an SNT allows funds to be used for expenses beyond what government assistance covers, such as medical care, education, and recreational activities. A trustee is appointed to manage the trust and distribute funds according to the specific terms outlined, ensuring that your loved one’s quality of life is enhanced without jeopardizing their access to important benefits. This structure offers both financial security and continued support, allowing your loved one to thrive with the care they deserve.
Types of Special Needs Trusts: First-Party vs. Third-Party
When creating a special needs trust, it’s important to understand the two main types: first-party and third-party trusts. Each serves a different purpose based on where the funding comes from.
A first-party SNT is funded with assets that belong to the individual with disabilities, such as an inheritance, a personal injury settlement, or other funds in their name. This type of trust allows the individual to maintain eligibility for government benefits like SSI and Medicaid while using the trust’s assets for their care. However, upon the beneficiary’s death, any remaining assets must be used to repay Medicaid for the services provided.
A third-party SNT, on the other hand, is funded with assets from someone other than the individual, typically from family members, as part of an estate plan. The assets in a third-party SNT are not subject to Medicaid repayment. After the beneficiary passes away, any remaining assets can be distributed to other family members or designated beneficiaries, providing additional flexibility for future planning.
Choosing a Trustee for a Special Needs Trust
Choosing the right trustee for a special needs trust is one of the most important decisions you’ll make in the process. The trustee is responsible for managing the trust’s assets and making sure they are used for the benefit of your loved one while following the terms of the trust. It’s important to select someone who is not only trustworthy and financially responsible but also understands the needs of your loved one.
You may choose a family member, a trusted friend, or a professional trustee, such as a financial institution or a lawyer. While a family member or friend may know the beneficiary personally, a professional trustee often has more experience managing funds and understanding the legal responsibilities involved. Some families opt for co-trustees, allowing a professional to handle the finances while a family member looks after the personal needs.
Funding a Special Needs Trust: Common Options
Funding an SNT ensures your loved one with disabilities has financial security while maintaining their eligibility for government benefits. There are several common ways to fund an SNT:
- Life insurance: This is a popular option for parents, as the proceeds from a policy can be directed into the trust upon their passing.
- Gifts or inheritance: Family members can contribute directly to the trust, providing financial support without jeopardizing benefits.
- Savings or investments: You can transfer personal savings or other investments into the trust to ensure a steady source of funds over time.
Planning for Peace of Mind
Planning for a loved one with disabilities involves careful consideration, and a special needs trust can offer both financial security and peace of mind. By setting up an SNT, you ensure that your loved one’s needs are met without risking their eligibility for essential government benefits. Whether you’re deciding how to fund the trust or choosing the right trustee, proper planning is key to creating a stable future for your family. If you’re ready to discuss how a special needs trust can benefit your loved one, contact us at the Law Offices of Clifford M. Cohen. We’re here to help you every step of the way.