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What is a special needs trust?

On Behalf of | Mar 16, 2020 | Estate Planning |

If you have a relative with disabilities, you likely have at least some understanding of the challenges he or she faces. After all, certain disabilities can interfere with an individual’s ability to perform everyday tasks. Your loved one may also be incapable of working or otherwise supporting himself or herself. If you want to make life a bit easier, you may be able to do so with some smart estate planning. 

Disabled individuals often rely on public assistance to pay certain expenses. If a person cannot work, qualifying for needs-based benefits may be an option. With Supplemental Security Income, Medicaid and other needs-based programs, applicants must prove they have limited wealth to qualify. Of course, if you gift money or other assets to your disabled relative, you may inadvertently make him or her ineligible for needs-based assistance. 

Special needs trusts improve quality of life 

Government assistance allows qualifying individuals to use funds to pay for specific expenses, such as housing, medical care and food. Many programs, though, prevent a person from buying convenience items. 

Funds from the special needs trust can pay for these things, like travel, transportation and supplemental medical care. Importantly, because funds live inside a trust, they are not part of your disabled relative’s wealth. Therefore, they typically have no effect on his or her eligibility to receive needs-based government assistance. 

Special needs trusts protect finances 

Disabled individuals often have trouble managing finances for a couple reasons. First, they may lack the mental acuity to stay on top of money matters. Even worse, an unscrupulous caregiver may misappropriate funds or otherwise act in bad faith. 

Because a special needs trust has a trustee that oversees the account, there is less of a possibility of financial mismanagement or monetary theft. Additionally, the right trustee can be certain disbursements do not sabotage your relative’s eligibility for government assistance. 

Helping a disabled relative pay supplemental costs is a noble goal. You do not, however, want to make life more difficult for your loved one. By understanding the advantages of setting up a special needs trust, you can better plan for helping your disabled family member.