If your child has special needs, you may wonder How a Special Needs Trust Works? A special needs trust is a type of financial document that will protect your child’s financial future. While government benefits can be helpful, they rarely provide more than subsistence for an individual. Therefore, a special needs trust will help ensure that the care you’ve provided will continue after you’re gone. Listed below are some of the benefits of setting up a special needs trust.
Medicaid and SSI programs have strict requirements for special needs trusts, and any assets left in the trust will not be counted as a beneficiary’s resource. Because these programs have strict eligibility requirements, these trusts may have a major impact on your child’s ability to qualify for benefits. However, there are several safe harbors for these trusts. If you’re planning to create a trust for your child, make sure to understand the requirements for both types of trusts.
When you’re setting up a special needs trust, you put your assets into a legal entity that is managed by a trustee. The trustee cannot give your loved one directly any money from the trust, which may jeopardize their eligibility for government benefits. The trustee may use the money for other expenses that are not covered by government aid. This way, your loved one will receive more money for those expenses.
A pooled special needs trust can also be beneficial. A nonprofit association or charity serves as trustee of the trust and acts as a liaison between the charity and the beneficiary. The charity retains excess Medicaid recovery and uses the extra funds for the operation of the trust. Pooled trusts can be set up in less time, and can cost as little as one-fifth of the fees for an individual special needs trust.
A special needs trust can prevent the beneficiary from losing government benefits, inheriting money, or getting a court settlement. It also reduces the risk of exploitation. You can set up a pooled trust or a third-party trust. A good guide to creating a special needs trust is available from NOLO. A special needs trust can help the disabled person benefit from government benefits and the trust’s assets.
In case of a medical emergency, a qualified first-party special needs trust can be very helpful. A first-party special needs trust helps preserve the financial security of the disabled individual. Because it uses the disabled person’s own money, a qualifying special needs trust is exempt from eligibility requirements for Medicaid and Social Security benefits. A special needs trust can provide additional income and assets to an individual who otherwise cannot afford them.
There are two main types of special needs trusts. Third-party special needs trusts are most commonly used for estate planning purposes. They are created by someone other than the beneficiary. They can be revocable or irrevocable. In either case, the beneficiary cannot be a trustee. As the third-party trustee, the parent can choose who will administer the trust. However, the child’s parents should choose a trustee for the special needs trust.
Third-party special needs trusts are funded with the assets of another person or entity, such as a family member or grandparent. The funds in third-party trusts are not subject to Medicaid’s quick recovery period, and they can protect a special needs beneficiary from receiving government benefits. However, they may not be the best solution for those who wish to ensure that their child or grandchild receives the care they need.
First-party special needs trusts must contain a Medicaid repayment provision. The remaining funds will be used to repay Medicaid and the beneficiaries listed in the document. In some states, first-party special needs trusts may be ideal for people with functional needs, such as those with a disability or an inheritance. Alternatively, they may be suited for people with an income or a windfall. If you have a lot of assets and no money to leave, a first-party special needs trust may be the best choice.