About Special Needs Trust Funds
When considering financial arrangements for your loved one's future, keep in mind that the possession of liquid assets can potentially prevent your loved one from receiving government benefits that he would otherwise be entitled to. Therefore, it is wise that upon planning your will, that you establish a special needs trust for a child or loved one who has a disability.
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Identification
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Special needs trusts enable families to leave money to a child or a loved one with disabilities without the worry of interfering with future Social Security payments or Medicaid insurance. Your loved one does not have any direct control over the special needs trust, and all expenditures are forwarded and handled by the trustee overseeing the account. The special needs trust is terminated upon death of the beneficiary or when the account reaches a zero balance.
Types
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There are generally two types of special needs trusts that ensure that the money is distributed properly. The traditional trust allows for a trustee to manage the funding needs of the special needs individual. Cash is never handed directly over to the person, but rather funds are allocated by the trustee for care costs, household needs and any other out-of-pocket expenses that may be incurred. The second type is a pooled trust that is handled by a special needs organization. The organization controls the finances of more than one special needs individual. Each beneficiary has a separate account, and the money is allocated as necessary to cover expenses.
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Considerations
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It is important to consider the possibility of money being left over in the trust after your loved one dies. Upon death, the special needs trust money will become part of the estate and can potentially be used as reimbursement for Medicaid. For this reason, it may be wise to will the remaining trust money to another family member after your loved one dies.
Misconceptions
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Some families may be led to believe that setting up a trust fund for their disabled loved one is only a matter of making arrangements with their bank. This is completely untrue. As a matter of fact, it can be financially catastrophic. In order to ensure that a loved one with special needs is able to maintain the same level of government care that they have been receiving, the terms and wording of the trust must be chosen properly. Playing it safe and having a knowledgeable lawyer set up these arrangements is in the best interest of your loved one.
Warning
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One of the biggest mistakes that a family can make is choosing a trustee that will not make their loved one's best interests a priority. This is not uncommon, and special needs trust funds need to be handled by a trustee that is of high moral standards and is trustworthy. The trustee should also be savvy with the handling of the finances, making decisions based solely on the needs of your loved one. If a trustee does not manage the special needs trust fund with care, your loved one can run out of money prematurely.
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Resources
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