Many people think that trusts are just a way for rich people to preserve their family’s wealth. It’s true that trusts are very useful tools for protecting assets and providing for future generations, but trusts can be customized for many purposes to help all kinds of families.
One type of estate planning tool is designed specifically for helping people with severe disabilities. Parents of children with disabilities often set up a special needs trust in order to provide for their loved one after they are gone.
The basics of trusts
When you (the grantor) place assets in a trust, you surrender most of your ownership rights to them and put them under the control of a trustee. The trustee manages the assets and distributes them to the named beneficiaries according to the terms laid out in the trust.
This type of arrangement may be useful in your estate plan because the assets in the trust will not be part of your estate when you die, and therefore do not have to go through probate.
A trust can also be useful in maintaining your eligibility for benefits programs such as Medicaid that require applicants to have limited means. Many people use trusts in this way to take advantage of Medicaid benefits that can help them pay for nursing home care, should they need it when they get older.
Special needs trusts
A special needs trust takes these ideas and customizes them for a beneficiary who has special needs.
The trustee manages the assets in such a way that the beneficiary maintains eligibility for Medicaid, Supplemental Security Income or other benefit programs, but can also keep a reserve of funds as needed.
In some cases, a person with special needs who comes into a bit of money (as with an inheritance or a personal injury award) can have a first-party trust in which they are the grantor and the beneficiary without losing their eligibility for government programs. However, in this type of trust, any assets left in the trust after the beneficiary’s death are surrendered to the government.
More common is a third-party trust in which relatives act as the grantor, naming the person with special needs as the beneficiary. There is no need to surrender remaining assets to the government in this type of trust.
Setting up any trust requires skill and knowledge, and that goes double for special needs trusts. Families who have loved ones with special needs can talk to experienced professionals about their options.