When you are planning for the distribution of your estate, it’s customary to allocate assets equally among your immediate family. But if one of those potential heirs has a disability and is eligible for governmental benefits, you need to take specific steps to protect those benefits. An effective tool can be a special needs trust.
How Do You Create a Special Needs Trust?
To set up a special needs trust, you need to prepare and execute the appropriate trust documents. It’s almost always a better idea to have the trust documents prepared by an attorney, so that you avoid any legal pitfalls. The trust document will identify the person setting up the trust (known as the “grantor”), as well as those individuals or institutions who have the authority to manage the assets of the trust (the “trustee”). It’s fairly customary to name both a personal trustee and an institutional trustee, as the personal trustee will be better able to make decisions that take the beneficiary’s needs into account, but an institutional trustee typically has more permanency (personal trustees can die or lose the legal capacity to manage trust assets). The trust document will also identify all powers of the trustees. Once the document is executed (signed by all necessary parties), assets can be legally transferred into the trust.
How Does a Special Needs Trust Work?
The concept of a special needs trust is pretty simple. A trust is a separate legal entity, with the power to hold assets. Any property you transfer into the trust is owned by the trust, not by you or your loved one. You can transfer just about any type of property into a special needs trust, including stocks and bonds, real property, art and jewelry, intellectual property rights and even a business and its assets.
It’s important to understand, though, that the trustee of a special needs trust cannot directly convey money to a beneficiary of that trust, as that will potentially disqualify the beneficiary from eligibility for benefits such as Supplemental Security Income (SSI) or Medicaid. The trustee can, however, purchase certain types of goods and services for the beneficiary, including medical expenses, recreation, vacations, vehicles and home furnishings.
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