A special needs trust is a type of trust designed to provide financial benefits to family members with special needs without affecting their eligibility for government benefits.
The main benefit of a trust is that it allows you to leave assets to your child or another family member with disabilities while still allowing him or her to qualify for public benefits, such as Supplemental Security Income (SSI) and Medicaid.
How does a trust work?
A trustee manages the assets in the trust and pays for certain items and services for your loved one. Your loved one will not have access to these funds, only the trustee will have that access. This prevents your loved one from losing his or her eligibility for government benefits.
How do trusts protect a person’s eligibility for public benefits?
A special needs trust makes sure that the beneficiary can continue receiving SSI and Medicaid because it is considered an excluded resource when determining eligibility. It also ensures that if someone decides they want to give money directly to your loved one, he or she will not lose access to public programs like SSI and Medicaid because gifts may be considered income which would decrease SSI payments dollar-for-dollar (if over $2,000 per year). Additionally, any money given directly would incur taxes on SSI payments if it causes them to surpass $70,000 in assets at any given time.
Can a trust be used to pay for items that are not covered by public benefits?
Yes! Any payments made on behalf of your child must be related exclusively to enhancing his or her quality of life. The special needs trust is designed to make sure that your child will be taken care of after you’re gone. It can provide for the beneficiary’s well-being and quality of life, including payment for:
- Supplemental care and support, such as food, clothing, education, therapy (occupational, physical, speech), vacations, and recreation
- Medical needs not covered by government benefits
Having a clear plan can alleviate tension among family members and set up your loved ones for success.
The worst thing you can do is to avoid this process. This strategy of avoidance causes stress in the family, and can ultimately lead to a disjointed approach that ends up costing more than if you had hired an expert to handle the situation right away.
With proper planning and execution, your family will be able to live with a sense of peace, knowing that everything is set up for success.