Setting up a special needs trust (SNT) requires knowledge, forethought and planning to avoid cutting off government benefits such as Medicaid and SSI to a disabled heir. If set up correctly, an SNT can be an invaluable benefit to your loved one when you're no longer around to provide care.
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Set up a special needs trust for your disabled loved one that will not jeopardize government benefits. If you violate the requirements for the disabled person to receive Medicaid and SSI, your trust money may all be paid out for medical and personal care.
Create a special needs trust that is managed by a trustee. To not jeopardize government assistance, the disabled individual cannot have access to draw from the trust at any time. The trustee must be responsible for spending the money only for the care not covered by Medicaid or SSI.
Obtain the advice of an attorney experienced in the setup of special needs trusts. All it takes is one word or phrase that is stated incorrectly, and the money intended to provide for a wide range of necessities can become the sole support for the disabled person.
Define the specific powers of the trustee. Clearly delineate the responsibilities and limits of the trustee to make sure your loved one is properly cared for.
Determine what happens with the trust after your disabled loved one dies. The balance of the trust may be tied up in court and lost due to legal fees if it is not designated to a secondary beneficiary or charity.
Decide who will become the trustee in the event the primary trustee is no longer able to serve. If no appropriate trustee is determined, the court will intervene.
Establish a living special needs trust for your loved one regardless of age. She does not have to be over the age of 18 for an "inter vivos" special needs trust to be established. The parents are often the trustees of such trusts.
Set up the special needs trust as irrevocable if you want it to be separate from your estate at the time of your death. You can use this trust only for the needs of the disabled person.
Establish the special needs trust as revocable if you want access to the funds in case of need. The revocable trust makes it a part of your estate for tax purposes.
Tips and warnings
- Many trusts for disabled individuals are a result of compensation for injuries or litigation. Since this is a trust funded by the beneficiary's own money, all state rules must be followed explicitly. This is different from establishing a trust from the family estate.