SNTs are legal arrangements in which a trustee holds, manages, and distributes assets to a beneficiary. The beneficiary is the disabled person. In most situations, the parents or family members establish the trust, and then a bank or agency manages the assets.
The rules of special needs trusts are complex and can vary significantly from one trust agreement to another and from state to state.
Suppose your disabled child will qualify for Social Security benefits as an adult. In that case, there often are limits on how many assets they can own and still qualify for Social Security payments. If your adult child does receive these payments before age 65 due to a disability, it is called Supplemental Security Income (SSI). The medical coverage is called Medicaid, as opposed to Medicare which is for people over age 65.
SSI and Medicaid programs exist to create a necessary safety net for children and adults with severe physical or intellectual disabilities.
However, these federally-funded programs have strict income and asset requirements for the people using them (beneficiaries).
With an SNT, the beneficiary (disabled child) does not own the assets. Therefore, they can still be eligible for SSI payments and, at the same time, access funds that help supplement the SSI.
“Trust” refers to the assets distributed to the “beneficiary” or disabled person. These assets often are savings accounts, family member contributions, life insurance payouts, or the money available after the beneficiary's parent passes away and their estate is settled (such as profits from the sale of their home).
When To Set up a Special Needs Trust
Setting up a special needs trust can be lengthy. If a parent or family member thinks their loved one (beneficiary) will need a special needs trust, you should begin the process. A parent's gut instincts are usually correct.
Too often, parents wait until they are aged or terminally ill.
Establishing a special needs trust can often be done while a family writes a will and advanced directives. While many adults avoid writing a will because they don't want to think about their mortality, parents of special needs children must do this.
Especially if the parent has legal guardianship of a disabled child, you want to be able to determine what happens with that guardianship after you pass on. You also want to protect the child from people only interested in being the trustee to access the money. Situations vary depending on the child's level of independent functioning or life skills.
Types of Special Needs Trusts
An SNT allows disabled persons to maintain their eligibility for public assistance benefits, despite having assets that would otherwise make them ineligible for those benefits.
There are two main types of SNTs, first-party and third-party. There is also a “Pooled Trust,” which can act as a first-party or third-party trust.
Third-party Special Needs Trusts Rules
Third-party special needs trusts are the most common type of SNT. Most families set these up to ensure that the special needs beneficiary will have the money necessary to enjoy the highest possible quality of life when their parents or primary caregivers are no longer there. The trust is often part of the estate plan of the person funding it.
Trusts are managed by someone selected as a trustee. A trustee could be a family member, friend, or neutral third party. Hence the name “third party special needs trust.” A parent may establish a lawyer, bank, or other financial institution to do this once the parent can no longer perform these duties. Fees are often deducted as a percentage of the SNT.
Under a third-party special needs trust, the beneficiary does not legally own the assets in the trust. The beneficiary cannot decide how the funds are dispersed and spent.
Trust funds can fund personal services, entertainment, travel, transportation, and medical costs not covered by insurance. Trust disbursements cannot be dispersed as cash gifts or payments. Doing so would make the beneficiary ineligible for needs-based government programs such as Medicaid.
Special needs trusts often have cumbersome and confusing regulations, so it is recommended that you hire a person or agency with experience navigating them.
The parents (or whoever is establishing the SNT) should also have provisions for what happens to the assets if the beneficiary (disabled person) passes away before the assets are exhausted.
First-party Special Needs Trusts Rules
First-Party Special Needs Trusts are far less common than Third-Party trusts whereby the assets in the trust are established by the disabled person themselves. These assets could come from a legal settlement or payout related to the person's disability. Car accidents or medical malpractice settlements are examples of how someone might establish a first-party SNT.
Funds from a first-party special needs trust cannot be used for anything that a government program might cover. These first-party trusts have other rules, such as age restrictions on the people who can set them up and on the people who are the beneficiaries.
Special Needs Trust Rules
A person does not have to hire a financial expert or lawyer to set up a special needs trust. Anyone can establish a special needs trust. However, the rules are complex. An incorrectly-established SNT could leave your loved one in an undesirable situation.
Every special needs person's situation is unique, and every family's financial situation is different. By hiring an attorney or financial professional in this area, you may experience tax breaks that will help offset the cost of their fees.
In some situations and SNTs, the contributions to the trust are tax-deductible.
Setting up a special needs trust allows parents to provide for their loved one with special needs a higher quality of life while, at the same time, protecting their eligibility for necessary government benefits. Because of the way a trust is set up, the assets in the trust are not considered to determine eligibility for need-based government programs. Your Special Needs Trust must be established correctly within federal laws and your state's regulations.
Who Can Set up a Special Needs Trust?
Anyone can set up a special needs trust. Many attorneys, estate attorneys, and financial planners specialize in this if you want to hire someone. Ask around and read reviews online. Many offer a free initial consultation.
None of us likes to think about our mortality. Especially if we have a loved one who we know cannot live independently. As emotional and challenging as it might be to set up a special needs trust, we want our disabled loved ones to be cared for after we're gone.
This article was produced by Wealth of Geeks.
source https://wealthofgeeks.com/special-needs-trusts/
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