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How a special needs trust can help beneficiaries

Estate planning is an important way for people to protect their wishes regarding distribution and management of their property. And though every estate plan will vary based on the creator and his or her interests, it also varies based on the parties receiving property.

For instance, if you have a child, sibling or other family member with physical or mental disabilities, you may want to consider setting up a special needs trust naming him or her as a beneficiary. 

The purpose of a special needs trust

Individuals with disabilities have unique circumstances regarding financial resources. They can require lifelong medical care and they may be receiving benefits from the government, such as Supplemental Security Income and Medicaid.

Leaving a gift to one such individual can make him or her ineligible for these benefits.

These programs typically have strict eligibility requirements, including a cap on resources and income. An inheritance that exceeds these caps could trigger termination of government benefits.

Instead of gifting money directly to the individual, you set aside property or money in a special needs trust. Like other trusts, you assign a trustee to manage the funds. The funds cover the beneficiary's supplemental needs, which can include:

  • Medical treatment
  • Dental work
  • In-home care
  • Educational and cultural experiences
  • Home repairs
  • Insurance premiums
  • A home (if it is the beneficiary's principal place of residence)
  • A vehicle (limit one)
  • Household goods
  • Entertainment

Setting up the trust properly

Establishing a special needs trust can be complicated. It requires specific language to ensure validity, and there are rules for how parties can and should fund the trust.

Mistakes or oversights in the creation and maintenance of the trust can jeopardize the efficacy of the trust and the beneficiary's government benefits.

It is also important to note that estate planning options besides a special needs trust can be helpful. Discussing your specific needs and goals with an attorney can help you identify the resources that are right for you.

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