Special Needs Trusts
Parents frequently wonder what the future will be like for their children. When a child has special needs, though, their parents may worry that they lack the resources needed to take care of themselves. Fortunately, there are measures parents can take to ensure their special needs children are well cared for even after they pass away, like developing a special needs trust. If you have a child with special needs, it is advisable to meet with a seasoned estate planning lawyer to explore your options for providing for them financially throughout their lives.
Creating and Funding Special Needs Trusts
Special needs or supplemental trusts are defined as trusts designated to provide for the needs of people with mental and physical disabilities. People interested in setting up special needs trust for their loved ones must adhere to the statutory guidelines; otherwise, they may impact the beneficiary’s rights to obtain state and federal benefits. Special needs trusts can be funded in a variety of ways; for example, they can be funded by family members, retirement funds, or by naming the trust as a beneficiary of life insurance. They can also be funded via gifts left in wills and damages awarded in lawsuits.
Types of Special Needs Trusts
Third party special needs trusts, the most common kind of special needs trusts, are essentially special needs trusts one party creates for the benefit of another, like a child or family member. They can be funded in a variety of ways; typically, parents will fund special needs trusts for their children.
Self-settled special needs trusts, conversely, are funded using the beneficiary’s assets. Self-settled special needs trusts are often employed when a beneficiary receives damages in a lawsuit or has substantial assets. While the beneficiary’s assets will be used to fund self-settled special needs trusts, they must nonetheless be established by another party, like a parent or guardian. It is important that parties strictly adhere to the statutory requirements when setting up self-settled special needs trusts to avoid waiving the beneficiary’s right to receive Medicaid benefits. In part, the trust must provide that any assets left in the trust after the beneficiary’s death must revert to Medicaid in the amount of the benefit paid by Medicaid to the beneficiary.
A pooled special needs trust, like a self-settled special needs trust, is funded using the beneficiary’s assets. They differ in that pooled trusts are created for the benefit of multiple parties. In other words, the assets of numerous beneficiaries are collectively used to fund the trust. The assets are pooled for administrative purposes only, however, and remain in separate accounts within the trust.
Talk to an Estate Planning Attorney
People with special needs often lack the ability to provide for themselves, but special needs trusts and other estate planning tools can provide their loved ones with peace of mind that they will be taken care of financially. If you are interested in creating a special needs trust or have questions regarding estate planning, please contact us to schedule a consultation.