Compared to bequeathing money to loved ones in a will, a trust offers a much greater degree of control. A trust allows you to protect trust assets while also providing income for loved ones, as well as providing instructions for how that income will be distributed.
For instance, you might have your trustee invest the trust assets and in turn send regular distributions to your beneficiaries on a quarterly schedule, or only each quarter those investments generate income. You may even provide basic requirements for how the money will be spent.
There are many reasons trust settlors may want this kind of control. For instance, a parent may want to provide income for a young child who is not ready to manage a large amount of money on their own.
The issue of control is especially important for parents or settlors whose children or other beneficiaries have special needs. Many such parents choose a type of trust known as a Special Needs Trust.
What is a Special Needs Trust?
At its most basic level, a Special Needs Trust is simply a trust set up to provide income and resources for a loved one who has special needs, such as those with severe disabilities or are otherwise eligible or may become eligible for public assistance. The trustee manages the assets in the trust and uses his or her discretion to determine when to make distributions from the trust and for what purpose. This arrangement can go into effect during the lifetime of the person setting up the trust, and it can continue long after that person has passed away.
At that basic level, a Special Needs Trust is like most other types of trusts that people set up to provide income for a loved one. However, there must be special considerations when doing this for people with special needs in order to ensure they maintain their public benefits.
Maintaining eligibility for benefits
Long-term care and medical treatment can be extremely expensive, and even relatively well-off families may need help paying for the care of their loved ones with special needs. Medicaid and other similar programs can provide for the long-term care of a disabled person, but only if that person falls below the state mandated income requirements and few existing financial resources. This can lead to a situation where many disabled people are considered too wealthy for Medicaid eligibility while also being unable to afford the such care one their own.
A Special Needs Trust can help with this problem. Since a trust is not owned by the beneficiary, it does not count against them when the state agency determines their eligibility for such programs. Furthermore, the terms of the trust can spell out how its assets can be used and when they will be disbursed to the beneficiary so that they will continue to maintain eligibility for their benefits.
In this way, the trust can ensure that the disabled person has the resources they need to take care of many things that are not covered by these public programs. For instance, they may need a way to pay for transportation, home accessibility modifications, or medical and dental costs that may otherwise be covered by their Medicare or Medicaid program.
Careful planning
However, one must be careful when creating a Special Needs Trust. The assets in the trust may have to be maintained for a long time, and so it’s important to choose a trustee with experience in trust and financial management. At the same time, the distribution of the assets must follow the state’s strict guidelines so that the beneficiary’s eligibility is not revoked.
With the help of careful, experienced professionals, many families have been able to set up this type of trust to care for their loved ones well into the future.