When You Should Consider Setting Up a Special Needs Trust
Disability benefits like Social Security place a limit on how much income a person can receive before their benefits are reduced. In 2019 alone, disability benefits were paid to nearly 10 million people. To reduce the possibility that benefits are reduced, it’s possible to set up a special needs trust.
What Is a Special Needs Trust?
A special needs trust is a fiduciary relationship and legal arrangement that provides a mentally or physically disabled individual with the ability to obtain income without hurting their eligibility for disability payments. This option also applies to chronically ill individuals who are receiving disability benefits. The benefit types that apply with a special needs trust include Medicaid, Medicare, Supplemental Security Income, and Social Security.
For Social Security benefits, disabled individuals are only allowed to earn $1,170 per month before benefit reductions start to kick in. If you set up a special needs trust, you could provide an individual with additional financial support. Keep in mind that the assets placed in a special needs trust can come from numerous sources. For instance, family members can gift certain assets to the trust while they are alive. In the event that a legal case pertaining to the disability is filed, it’s common for a special needs trust to be created to hold the assets that are obtained from a legal settlement.
While the assets that are held in a special needs trust shouldn’t play a part in the number of disability benefits that the individual receives, it’s important that these payments aren’t used for certain shelter and food expenditures. It’s common for these assets to be used for transportation costs, medical expenses, and payments for caretakers. Just like all trust accounts, the disabled individual will designate a trustee to hold the account for them. The trustee is responsible for disbursing funds and managing the account.
Before placing money into a special needs trust, it’s important to understand that assets that belong to the disabled individual may still be affected by income limits even if they are placed into a special needs trust. However, assets that are given by third parties won’t affect the set income limits. As long as a special needs trust is used correctly, it can be highly beneficial to cover extra expenses for the disabled individual without taking away their disability benefits.
Potential Benefits of a Special Needs Trust
The most notable benefit of a special needs trust is that it allows the disabled individual to receive certain income that won’t change their eligibility for disability payments. The person who sets up the account can also be confident that the assets placed in the trust will only go to the expenses that are stipulated by the trustee. If parents place money into a special needs trust instead of providing the money to an individual, they can be certain that the assets will be used for their intended purpose.
Keep in mind that these trusts are considered to be irrevocable, which means that creditors cannot gain access to the assets that are contained within. For the full benefits of this account, it must be established before the disabled individual turns 65. At 65, there are no income limits that could reduce eligibility for disability payments.
When to Set Up a Special Needs Trust
There are several situations that might call for you to set up a special needs account, the primary of which is when assets provided to a disabled individual may hurt their eligibility for disability benefits. Since some of these benefits are reduced once the disabled individual obtains more than $1,170 in a given month, it’s common for a special needs trust to be created to avoid a reduction in payments.
You might also want to set up a special needs trust to have more control over how your assets are used by the disabled individual. As long as the account is properly created, you have complete control over how payments are disbursed. Some people will set up a special needs trust to earmark assets that can be used at the time of their death. As mentioned previously, these trusts can protect assets from being seized by creditors. If you want to build an estate plan with the help of our New Jersey estate planning lawyer, a special needs trust may be right for your situation.
If you’re interested in learning more about special needs trusts, call our Hackensack, New Jersey, estate planning lawyer today at (201) 996-1200 to schedule a private consultation.