Special Needs Trust

Trusts can be created for many types of reasons, but a special needs trust is set up for someone who cannot care for themselves, or needs to have supplementary benefits after their caregiver is gone. In many cases, those with special needs are given benefits from government programs, and a trust will supplement the rest of the money or care that they need.

What is a Special Needs Trust and How Does it Work?

Most often a special needs trust will cover a percentage of what the beneficiary needs financially. Typically this is whatever is not covered by public assistance payments. The assets placed into the trust do not count as “income” making the person with special needs unable to qualify for public assistance.

When you create a trust you will have full control over it. This means naming a trustee who will then take control over the trust.

The only caveat is that the money in the special needs trust cannot be used for food or shelter payments. Typically they are used for medical expenses, caregiving costs, costs of transportation, or other allowed expenses.

Advantages of Starting a Special Needs Trust

There are many benefits of setting up a special needs trust. First off, the beneficiary receives the financial support they need without risking their eligibility for lower-priced apartments or other low-income programs. Special needs trusts also allow other people to put money into them.

It will also ensure that the assets you place into the trust will be used for the right reasons. The money placed in the trust will be sure to go to the right places and cannot be exploited.

Disadvantages of Starting a Special Needs Trust

Unfortunately, special needs trusts are costly to set up and typically have high annual fees that could waste a lot of the capital inside the trust. The special needs trust also must be established before the beneficiary turns 65. This means if someone develops a special need later in life this may not be possible.

Whoever is appointed as the trustee will have complete authority over what happens to the funds. Although this is based on the terms and conditions of the trust, it still means that the beneficiary will lack any independent use of the funds.

In addition, the federal government has a law requiring Medicaid insurance to be paid back in equal amounts to meet the needs of the medical expenses. This is only for those assets originally owned by the disabled person, but eventually, this can completely drain the account. On the bright side, if assets are placed into the account by a third party, this rule does not apply.

How to Start a Special Needs Trust in 5 Steps

Starting a special needs trust may seem overwhelming but it actually is very simple. Follow these 5 steps to successfully start and fund a special needs trust.

  1. Choose a trustee: The person of your choosing should be someone you can trust to take care of the assets within the trust. You want them to care about the person, and do what is in the best interest of the beneficiary.
  2. Draft your trust: The trust document should have the terms laid out of the trust. This includes naming a grantor, beneficiary, trustee, and the assets as well. This document can be written out by a lawyer or you can do it yourself, carefully.
  3. Sign and notarize your trust document: No trust is legal or binding until it is signed and notarized by everyone involved.
  4. Open a trust account: In order to fund the trust, a bank account must be made in the trust’s name, as well as with the name and tax ID number. This is applied for and given by the IRS.
  5. Fund the trust account: Anyone can place funds into the trust. This includes assets, stocks, property, cash, even jewelry.

Should You Start a Special Needs trust?

Taking measures to ensure that your child or loved one is taken care of is important. Creating a special needs trust is something that can offer protection, and the ability to secure a future. Despite this, it is an expensive trust to create and will have ongoing fees. If you do not have excess funds to cover these costs, it may be a waste of your time, with a will, and a trusted person who can give funds to the beneficiary as needed, being a better option.