Most parents try to do the right thing for their children when creating an estate plan. Providing for the security and well-being of loved ones is a primary motivator for people creating their own wills. But when a member of your family has special needs, standard estate planning strategies that rely mostly on a last will may not be adequate for your family’s unique needs.
If you want to use your estate plan to help a loved one with a disability, you face a conundrum. By gifting money or other assets through a standard inheritance, you may inadvertently render your relative ineligible for government help. Because of your gift, he or she may have too many assets to qualify for need-based financial assistance like Supplemental Security Income or Medicaid. A special needs trust solves this problem.
The Purpose of a Special Needs Trust
A special needs trust is an important estate planning tool. This type of trust maintains funds for the benefit of your loved one with a disability rather than transferring ownership to him or her. Consequently, funds in the trust do not typically constitute income for purposes of securing government assistance.
Even if you trust your special needs family member to handle the money or assets you leave them responsibly, receiving those assets in a lump-sum inheritance could disqualify them from state benefits. A properly funded special needs trust avoids this pitfall while still providing years of financial security.
How a Special Needs Trust Protects Government Benefits
Many adults with special needs receive benefits such as housing stipends or Medicaid as a result of their condition. Those benefits are often critical. For example, many private insurance companies and Medicare will not cover residential care or in-home nursing, both of which people with special needs may require.
Medicaid will cover those costs, but a large inheritance could prevent someone from qualifying for Medicaid for some time unless they pay a large amount of money out-of-pocket. State benefits are often of particular importance in families where there are no other children or where the special needs family member will be in an assisted living facility or adult foster care.
Because a special needs trust holds assets on behalf of your loved one rather than placing them in his or her name, those funds generally do not count against eligibility thresholds for means-tested programs.
The Role of the Trustee
Starting a special needs trust has another key benefit: you retain control over how your loved one uses the funds you leave behind.
When you establish the trust, you choose a competent and responsible trustee to supervise it. The trustee performs important bookkeeping and reporting functions and invests the trust to help it grow. The trustee must also approve all disbursements, which allows him or her to assist your loved one with accessing necessary services or purchasing items that enhance quality of life.
If your loved one has a special need that affects their maturity or cognitive ability, they may not be able to properly budget and plan for future expenses. Through the trust, you can place limits on how much they can withdraw at any given time to protect a nest egg for them. How strict those limitations should be will vary depending on your family member’s condition, the amount of money you leave them, and what other support and resources they have available.
So long as you name someone responsible and trustworthy as trustee, you can enjoy the peace of mind that comes from knowing you are leaving enough behind to care for your loved one for many years after your death. Consulting a trust lawyer can help ensure the trustee is chosen wisely and the trust is set up to meet all legal requirements.
Talk to an Estate Planning Attorney
Creating a special needs trust requires careful planning to make sure your loved one is provided for without jeopardizing the government benefits they depend on. At Daughtry, Woodard, Lawrence, & Starling, we help North Carolina families explore the option of creating and funding a special needs trust tailored to their unique circumstances. Contact us today to discuss how we can help you protect your loved one’s future.
This information is provided for educational purposes and should not be interpreted as legal advice.
