Using A Special Needs Trust To Protect Your Loved One
POSTED ON: February 29, 2024
Using A Special Needs Trust To Protect Your Loved One | The Law Offices of Kayce C. Staehle

If you have a loved one with disabilities, they may be the person who is most on your mind during your estate planning. You may have specific concerns about providing for them, or you might be wondering how you can best protect them after you or their caregiver are gone.

Luckily, there are specific strategies you can use to help protect your loved one who has special needs. Keep reading this article to learn:

  • The different types of special needs trusts you can create to provide for your loved one.
  • The role and key responsibilities of a trustee for a special needs trust.
  • Why it is absolutely imperative that you create a trust for your loved one and do not give them assets directly.

What are the Key Elements of a Special Needs Estate Plan, and How Do They Differ from a Standard Estate Plan?

When you are trying to protect a loved one who has special needs, if they are the beneficiary or one of the beneficiaries of your estate plan, you would need to consider two types of special needs trusts for them. Specifically, you must decide whether you want to cover some of the person’s needs during your lifetime, or if it will be a testamentary-type gift, meaning that your assets will be given for their care upon your death.

First and foremost, you should figure out what kind of assets, protection, or needs your loved one may have, both during and after your lifetime. This is the first key element of deciding how to establish their plan.

Can a Special Needs Trust Benefit a Person with Disabilities without Jeopardizing Their Eligibility for Government Assistance Programs?
A special needs trust is designed especially to benefit a person with disabilities without jeopardizing their government assistance programs. The special needs trust is set aside for the benefit of the person with disabilities, and any money can be provided to them through the trust. If you are setting up the special needs trust, you could choose to disburse funds to the person during your lifetime.

Alternatively, they could be provided for in the form of a gift after you have passed away. The money could be held in the trust for their benefit, to be used for the various needs they may have associated with their health. Setting up the trust in this manner avoids having these funds directly in their name, which could disqualify them from their government benefits.

Are There Different Types of Special Needs Trusts?
Yes, the two types of special needs trusts that you should consider are a first-party and a third-party trust. These two types of trusts deal with whether the needs are during the course of the lifetime of the grantor or not.

This distinguishes whether the grantor is leaving money to the person with special needs, or if it is a testamentary-type gift from the grantor. It is possible to have both, depending on the person’s specific needs and the resources of the grantor.

What is the Role of a Trustee in a Special Needs Trust, and What are the Responsibilities Associated with Managing Trust Assets?
The key responsibility of a trustee, and their role in the process of managing a special needs trust, is to protect the assets for the benefit of the person with special needs for whom the trust was created. They must use the funds for the specific needs that the person with disabilities has beyond what their facility or government benefits offer.

For instance, if they need a special type of bed, a wheelchair, or other type of medical device, you could use the funds from the trust to cover these items if they are not provided to them through other programs. You could also use the trust to pay for extra things in their room that would make their life a little more convenient or comfortable.

These are examples of what the funds from a special needs trust can be used for, and the role of the trustee is to manage and protect those funds. This could also include making sure the funds are growing, if possible, and using those assets for the benefit of the person with special needs.

Are There Tax Implications for Special Needs Trusts, and Can They Be Structured to Minimize Tax Liability?
Much like other types of irrevocable trusts, a special needs trust is a separate entity distinct from the person. If you create any type of irrevocable trust that is growing assets or producing income, including a special needs trust, then you must file an income tax return for the income increases.

How Can I Plan for the Financial Well-Being of a Person With Special Needs After the Passing of Their Parent Or Caregiver?
When you are the parent or caregiver for a person with a disability, it is normal to be concerned about how to care for them after your passing. Setting up special needs trusts, wills, or revocable living trusts are great ways for grantors, parents, and caregivers to be able to provide for their loved ones with special needs.

You should specify in your will or revocable trust that it is a testamentary-type gift for those special needs individuals. Your estate planning attorney will be able to assist you with what to say in your will and answer any questions you have about creating a special needs trust.

Along with setting up that type of trust through a will or revocable trust, you should also establish backup trustees who would serve once the parents or caretakers are gone. This is a critical step to ensure you are taking care of your loved ones with special needs.

What Happens if a Person with Special Needs Inherits Assets or Property Directly Without Proper Estate Planning in Place?
If a person with special needs inherits any form of assets directly without a special needs trust in place, that could cause disqualification of their government assistance. Your loved one would be required to use those assets for their care and would have to requalify for the government assistance programs in which they were previously enrolled.

This is why it is critical that you provide for your loved ones with disabilities through a special needs trust or other specific methods that will allow them to maintain their status in government assistance programs. Working with your estate planning attorney will help ensure that you protect your loved ones in the best way possible.

Can a Special Needs Estate Plan Address Long-Term Care and Medical Expenses for Individuals with Disabilities?
Yes, your special needs estate plan can set up a trust for various assets that could produce the necessary payments for the long-term care and medical expenses of any of your loved ones with disabilities. It can also be in place of a long-term care facility if you have private care available for the individual with disabilities.

How Often Should A Special Needs Estate Plan Be Reviewed And Updated?
You should review your estate plan, including your special needs estate plan, at least every three years. With a special needs estate plan, it is also important to evaluate the person with disabilities and make adjustments as their care requires.

If their medical situation, their family situation, or their needs change, that would be a critical time for you to review their plan. In general, you should also stay updated on any laws associated with special needs trusts, so you can adjust the plan if any related laws change.

For more information on Special Needs Trusts in an Estate Plan, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (704) 625-6170 today.


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