If you have a family member with special needs, they may qualify for certain benefits, such as Medicaid or Social Security. These benefits are often essential for covering expenses like housing or medical care.
As you create your estate plan, you may consider leaving financial assets to this individual, knowing the money could significantly help them. However, directly leaving them the money could disqualify them from these benefits.
How a direct inheritance can cause issues
Many government benefits have a means test, meaning the recipient must demonstrate financial need. If you leave someone $100,000, for example, they may fail the means test and be required to spend that money down before they can qualify for benefits again. This can create a complicated financial situation and an interruption in benefits.
The trust owns the funds
If you set up a special needs trust, the trust—not the beneficiary—owns the assets. A trustee is responsible for managing the funds and authorizing payouts. Because of this structure, the beneficiary can still qualify for government benefits.
At the same time, the money in the trust can be used for additional expenses that benefits may not cover, such as transportation, phone bills, educational costs, travel, vacations and more. A special needs trust ensures that your loved one has access to these funds, while still preserving their eligibility for crucial government assistance.
Setting up a trust
If you are considering establishing a special needs trust or any other type of trust, be sure you understand the legal steps involved to get everything set up properly. It can help to work with an experienced law firm at this time.
