What is a Special Needs Trust? When is it Useful?
A special needs trust is an estate planning tool geared toward a person with special needs. It may be used protect and manage an inheritance for a child with special needs. It may be used when a person needs assets managed on their behalf in such a way that it does not compromise their access to government benefits. It may also be used to receive assets from a legal settlement, often when the recipient is a minor.
4 Reasons for a Special Needs Trust
Here are a few examples of some of the most common reasons for establishing a special needs trust.
1. Establishing a Trustee
Trusts are designed to receive and protect assets. But you also can use your trust to name a trustee who will manage those assets on behalf of your child with special needs in your absence.
If your beneficiary is incapable of managing their own finances, the trustee will guard their assets and take an administrative role in spending decisions. The trustee will also make sure the use of all trust assets adheres to the guidelines set in that trust.
Your chosen trustee may be a trusted family member, but in some cases it may make sense to go with someone from outside the family. Your attorney can help you determine who is best suited for the position.
2. Wealth Preservation
Another reason to use a special needs trust is to preserve wealth for the benefit of your special needs children. Wealth preservation is one of the most common reasons to establish any kind of trust and that is one of the benefits that comes with a special needs trust. You will be able to pass down assets without having to worry about applicable taxes or other issues that could restrict the amount of money your beneficiary receives.
3. Protecting Government Benefits
Leaving assets outright to a person with disabilities could potentially jeopardize the government benefits they receive. Programs such as Supplemental Security Income (SSI), Medicaid and others often have income restrictions for the recipient to qualify. By keeping assets in a trust and managing the dispersal of those assets, you can ensure your child with special needs will still qualify for those government benefits while also remaining financially secure through their carefully managed inheritance.
4. Protecting Assets from Creditors or Divorce
A special needs trust is highly effective at preventing creditors from going after assets if they attempt to sue your beneficiary.
A special needs trusts can be useful in the event of divorce, and in some cases may even be required as part of the agreement. The trust may be used to receive child support for the benefit of the disabled child, so those assets will not be considered when determining the child’s qualification for government benefits. It can also be used in a divorce to receive any assets that are specifically earmarked for that disabled child’s future use.
For more information about special needs trusts, contact an experienced estate planning attorney at Baker Law Group, P.C.
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