Trusts are key estate planning tools because they provide a trust account that can hold money and other assets for your beneficiaries, to be used when and how you instruct in your trust document. This is an especially useful arrangement if you have a loved one with special needs. In fact, there is a particular type of trust referred to as a special needs trust created specifically for that purpose. This article will give you basic information about special needs trusts, what they are, how they work and how they can be an invaluable part of your special needs planning.
The definition of a special needs trust
The purpose of a special needs trust is to plan for the future care of someone who has a special need or disability. This can include financial support, medical care, general personal care and protection of government benefits. The two major goals of a special needs trust are to protect your loved one’s eligibility for government benefits and to ensure that if something happens to the primary caregiver, your loved one will still be taken care of. A special needs trust is irrevocable, which means it cannot be revoked or modified once it has been created. They also protect the assets included in the trust from potential creditor claims.
The two basic types of special needs trusts
There are basically two types of special needs trusts: General Support and Supplemental Care. A General Support Special Needs Trust is usually seen as the main source of benefits for someone with special needs. A Supplemental Care Special Needs Trust, on the other hand, is considered more of a secondary source of benefits, to be used when government resources have been exhausted. A Supplemental Care Special Needs Trust is the most common type of trust created for special needs care.
What does “special needs” care encompass?
The term “special needs” is rather comprehensive. It generally refers to medical treatment and health-care services, as well as other related services meant to increase the beneficiary’s quality of life. Special needs trusts can also be used to provide resources for daily living activities, respite care for the primary caregiver, and living arrangements or necessary renovations to the beneficiary’s home, among other things.
How to create a Special Needs Trust
There are two ways to create a special needs trust. It can either be established during the caregiver’s lifetime or through a provision included in a will. Once the trust has been created, you need to obtain a tax identification number from the IRS so that a bank account can be opened.
Trustees of a special needs trust
Usually, the person executing the trust document (the grantor) will name himself or herself as the trustee. With a special needs trust, the grantor is the typically the trustee because the grantor is most often the caregiver. It is necessary, however, to also identify someone else to serve as successor trustee, when necessary.
The purpose of a successor trustee is to have someone to take over administering the trust when the initial trustee is no longer able to serve. That need can arise for a number of reasons, such as the death or incapacity of the trustee or if the trustee has to resign for any reason.
How to fund a Special Needs Trust
In most cases, trusts used for special needs are funded by a parent or relative of that individual. In cases where the trust is funded by the beneficiary’s own assets, it is referred to as a “self-settled” special needs trust. With self-settled trusts, federal law requires that Medicaid is reimbursed for benefits paid when the beneficiary passes away. Another way to fund a special needs trust is through pooled trusts, which means the funds belonging to several different beneficiaries are pooled together, managed and invested on behalf of all beneficiaries by a non-profit organization.
Funding a special needs trust with cash
Although nearly any type of assets can be held in trust, including real estate, securities, and personal property, cash is often the best option when it comes to paying for items not provided by SSI or Medicaid. One way to handle this is to include terms in the trust that give the trustee the authority to sell tangible items in order to liquidate them for cash. Speak to your estate planning attorney to determine the best options.
If you have questions regarding a trust, or any other estate planning matters, contact Gersh Law Offices, P.S.C. for a consultation either online or by calling us at (502) 423-7023.
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