What Are Special Needs Trusts?

What Are Special Needs Trusts?

June 26, 2023

Special,Needs,Trust,Application,With,Clipboard,And,Notepad.What Are Special Needs Trusts?

A special needs trust, also known as a supplemental needs trust, is a type of trust designed to protect the assets and ensure the financial security of an individual with special needs. Special needs trusts are essential because people with disabilities often require significant medical care and assistance, which can be expensive. In this blog post, we will discuss what special needs trusts are and how they can be used to support an individual with special needs.

What is a Special Needs Trust?

A special needs trust is a legal arrangement where a trustee holds and manages assets on behalf of an individual with special needs. The trust is designed to supplement the government benefits received by the individual and provide additional financial support for expenses not covered by these benefits.

There are two main types of special needs trusts: a first-party special needs trust and a third-party special needs trust.

A first-party special needs trust is established with the assets of the individual with special needs, and these assets must be managed in a way that does not interfere with the individual’s eligibility for government benefits. This type of trust is often used when the individual receives a settlement or judgement from a lawsuit or inherits assets.

A third-party special needs trust is created by someone other than the individual with special needs, such as a parent or relative. These trusts can be funded during the lifetime of the individual or established through a will or other estate planning document. The assets in a third-party special needs trust are not considered to belong to the individual with special needs and do not affect their eligibility for government benefits.

Benefits of Special Needs Trusts

One of the primary benefits of a special needs trust is that it protects the assets of an individual with special needs while ensuring that they continue to receive government benefits. The trust can provide a source of supplemental income for additional expenses, such as education, therapy, and medical care.

Special needs trusts can also provide peace of mind for parents or other family members who wish to ensure that their loved ones with special needs will be financially secure even after they are no longer able to provide care.

Furthermore, special needs trusts can offer tax benefits. Income earned by a first-party special needs trust is taxed at the individual’s income tax rate, which is often much lower than the estate tax rate. Assets in a third-party special needs trust are not subject to estate tax.

How Does a Special Needs Trust Work?

To set up a special needs trust, a trustee must be appointed to manage the assets in the trust on behalf of the individual with special needs. The trustee can be a family member, friend, attorney, or professional trustee.

The trustee is responsible for administering the trust in accordance with the terms of the trust document and making payments to the beneficiary as needed. The trustee must follow the guidelines set forth by the trust to ensure that the trust assets do not affect the individual’s eligibility for government benefits.

The trust document should also outline the circumstances under which payments can be made to the beneficiary. For example, it may specify that funds can be used to pay for medical expenses, education, home modifications, or dietary needs. Any expenses covered by the trust must be related to the beneficiary’s special needs.

Conclusion

A special needs trust is an essential tool for protecting the assets and ensuring the financial security of an individual with special needs. These trusts can provide supplemental income to cover additional expenses, such as therapy or medical care, without interfering with government benefits. Special needs trusts offer many benefits, including tax advantages and peace of mind for parents and caregivers. With the help of an experienced attorney, setting up a special needs trust can be a straightforward process that can offer long-term financial security for individuals with special needs.

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