When you think about estate planning, you often think of creating a standard will and trust. But for some people, their circumstances may require a special type of trust.
Let’s first start by discussing what is a trust? A trust allows you to put conditions around how and when your assets will be distributed after you pass away. Trusts can reduce estate taxes, protect property and avoid probate. There are several types of trusts you can create, one of which is a special needs trust.
What is a special needs trust?
A special needs trust can help you provide for someone with a disability to avoid compromising their Medicaid, Social Security and other governmental assistance. According to the Special Needs Alliance, there are two main types of special needs trusts, a first-party special needs trust and a third-party special needs trust.
A first-party trust is commonly used when a person with a disability inherits money or property outright, or they receive a court settlement. A third-party trust is most often used by a parent or other loved one who is planning in advance for the care of someone with special needs.
Additionally, you could consider a pooled special needs trust. A pooled special needs trust is one where the assets of a number of special needs trusts are combined and the assets are managed by a non-profit tax-exempt association using a master trust agreement. This means you would be opening a separate sub-account for your beneficiary which is then pooled with the assets of other separate sub-accounts that the non-profit organization manages according to the trust’s terms. This type of special needs trust is often less expensive to create.
How do special needs trusts work?
Special needs trusts function like any other types of trusts. There are three main parties involved:
- The grantor: this is the person who sets up the trust and provides the money or resources for it.
- The trustee: this is the person who is in charge of managing the assets placed in a trust.
- The beneficiary: this is the person who receives the benefits or assets that the grantor notes in the trust.
For a special needs trust, a beneficiary can often use the funds to pay for expenses such as housing, medical appointments and supplies and more. The trust lasts until it runs out of money, the beneficiary passes away or the beneficiary no longer qualifies as someone with special needs.
How can an attorney help?
There are important nuances and specific rules that must be followed for each type of special needs trust, which is where an attorney comes in. They can help you determine which type of trust is right for you or your loved one, along with helping you understand your state’s laws and federal regulations governing special needs trusts.
It is important to note that trusts, especially special needs trusts, are often very complex documents with significant legal and financial implications. They’re also subject to state laws that can greatly vary depending on where you’re located. Because of this, it’s critical to consult with an experienced attorney who is licensed in the state where the trust is created – and potentially a financial advisor – to make sure that your special needs trust is properly set up. You’ll also want to review your trust, and estate plans overall, every few years (or as major life events occur) to ensure they’re up to date and don’t require any changes.
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