In honor of this month let us take a closer look at Special Needs Trusts that are crucial estate planning tools designed to protect the financial well-being of individuals with disabilities. We will delve into the essential aspects of special needs trusts, their benefits, and the considerations involved in setting up and managing them.
1. What is a Special Needs Trust?
A special needs trust is a legal arrangement that allows funds to be held and managed for the benefit of an individual with a disability. It is established to supplement and not supplant government benefits so additional financial resources can be provided to him or her to enhance the quality of life without jeopardizing their eligibility for assistance programs like Medicaid and Supplemental Security Income (SSI).
2. Types of Special Needs Trusts:
There are different types of special needs trusts, including First-party or self-settled trusts, third-party trusts, and pooled trusts. First-party trusts are funded with the individual’s assets, such as an money earned by the individual prior to the disability, or inheritance or personal injury settlement When the individual dies, any money remaining in this trust must be paid back to the StateThird-party trusts, on the other hand, are created by someone other than the beneficiary typically a parent or grandparent, for the benefit of the individual with disability. Money left over in these types of trusts upon death of the beneficiary can be redistributed among other family members. Pooled trusts are managed by nonprofit organizations, combining resources from multiple beneficiaries for investment purposes.
3. Preserving Eligibility for Government Benefits:
One of the primary advantages of special needs trusts is the ability to protect the individual’s eligibility for government benefits. These trusts ensure that the assets held within the trust are not considered as owned by the individual, preventing them from exceeding the income and asset limits set by benefit programs. As a result, the individual can continue receiving essential government assistance.
4. Using Trust Funds for Supplemental Needs:
Special needs trusts allow funds to be used to cover a wide range of supplemental needs beyond what government benefits provide. These may include medical and dental expenses not covered by insurance, therapy and rehabilitation services, educational expenses, transportation costs, assistive technology, home modifications, and recreational activities, sometimes even air-fare for the individual along with a companion. Therefore, the Trust funds are used to enhance the individual’s quality of life and promote their overall well-being.
5. Protection from Exploitation and Mismanagement:
Establishing a special needs trust also provides an added layer of protection for individuals with disabilities. By appointing a trustee to manage the trust funds, you can ensure that the funds are used responsibly and in the best interest of the beneficiary. This protects the individual from potential exploitation or mismanagement of their financial resources.
6. Selecting the Trustee:
Therefore, trustee selection can become a crucial decision in establishing a special needs trust. It is important to choose someone who is trustworthy, reliable, and capable of handling financial matters. We prefer appointing a professional trustee (like Plan NJ or Bryn Mawr Trust) rather than a family member or close friend to ensure proper management and adherence to the trust’s terms.
Conclusion:
Special needs trusts are powerful tools that enable families to protect their loved ones with disabilities, preserve eligibility for government benefits, and enhance their quality of life. Understanding the different types of trusts, their benefits, and the proper management of trust funds is crucial in ensuring the long-term financial security and well-being of individuals with disabilities.