Here’s how to best utilize a special needs trust

| Jan 5, 2021 | Estate Planning |

Recently on the blog we discussed special needs trusts and how they might benefit your estate plan. This week, we want to a take a closer look at these trusts so that you have a better understanding not only in regard to what they have to offer, but also where their limitations lie.

As we mentioned in our previous post, special needs trusts allow you to provide financial relief to a loved one who suffers from a physical or mental disability. By utilizing a special needs trust, you can allow your loved one to continue to receive government benefits such as Medicaid and Supplemental Security Income because assets that come from the special needs trust are not counted for eligibility purposes. There are limitations on how those assets can be used, though, which is why you’ll want to fully understand how these assets can be used before moving forward with one of these trusts.

How special needs trust assets can be used

If you want your loved one to retain eligibility for government programs, then special needs trust assets can’t be used for just anything. As disheartening as that may sound, you should recognize that there are a lot of things that special needs trust assets can be used to cover. Here are just some of the ways that your special needs trust assets can be used to assist your loved one:

  • A primary residence: A primary residence doesn’t count toward income and asset requirements when determining government program eligibility. Therefore, you can help pay for a home for your loved one so long as the value of the home doesn’t exceed a certain limit.
  • A vehicle: The same holds true for one vehicle. Your trust assets can help pay for one of these vehicles without affecting eligibility.
  • Personal items: This is a broad category that can include many things to be owned by your loved one. You can get creative here to suit your loved one’s needs, but be sure to discuss what you have in mind with this category before setting expectations with your loved one.
  • Furnishings: Even furniture for your loved one’s home can be purchased with trust assets without harming eligibility for government programs.

How you shouldn’t use a special needs trust

There are ways that a special needs trust can harm your loved one’s ability to recover government benefits. Those harmful uses can include cash disbursements; additional real estate; retirement accounts; bank accounts; and investment accounts.

You’ll probably want to avoid having these assets pass directly to your loved one through a special needs trust if you can avoid it, but speaking with your estate planning attorney can give you a clearer sense of how you should handle these matters moving forward.

Know how to create the detailed estate plan you need

While a special needs trust can be a critical part of your estate plan, it might not be right for you. Even if it is, it should comprise just a portion of your overall plan. All of that is to say that your estate plan needs to be custom-tailored to suit your and your loved ones’ needs. This means that you need a detailed plan that addresses every issue that is important to you and your loved ones.

That can be a tricky thing to accomplish, especially if you’re unfamiliar with the ins and outs of estate planning, but the good news is that you don’t have to walk through the process alone. Instead, you can work closely with a legal professional who can help you make the informed decisions you need to make the outcomes you desire become reality.