By: Carah Kiley
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Special Needs Trust
If your loved one has a mental or physical disability, a special needs trust can help both of you navigate complex government benefits and requirements and ensure financial stability. A special needs trust allows you to appoint a trustee to oversee assets and provide for your loved one without risking or preventing access to benefits such as MassHealth (Medicaid), Supplemental Security Income (SSI), subsidized housing, vocational rehabilitation, or Social Security Disability Income (SSDI). An irrevocable trust must meet some basic requirements: the beneficiary must be younger than 65 and total control must be given to the trustee. This tool will allow your family to feel financially confident without restricting access to necessary government benefits.
There are two main types of special needs trusts:
Self-Funded Special Needs Trust. You may have also heard these referred to as a first-party trust. The funds in this type of trust come from the disabled person’s own assets. Consider the following situation: A family member leaves a generous bequest to your disabled loved one. This inheritance could potentially pose negative financial implications to a person with disabilities because it could, in effect, limit their ability to access benefits and support from the government. However, if the money from the inheritance is used to fund a special needs trust for your disabled loved one, you can likely sidestep this problem. A self-funded or first-party trust is required to be set up by a guardian, conservator, or court order and (like all trusts) must be overseen by a trustee. Be aware that after the beneficiary’s death, remaining funds will be used to “payback” the government for benefits provided (like Medicaid).
Third-Party Trust. An alternate option is a special needs trust that is funded by someone other than the disabled person. These trusts can be created by family members or other interested parties and must be funded entirely by third-party contributions. Unlike a first-party or self-funded trust, there is no need to pay back the government upon the beneficiary’s death. Upon the death of your disabled loved one, remaining funds can be dispersed to other named beneficiaries.
If you are interested in establishing a special needs trust, but you are unable to find an appropriate trustee, you can consider a pooled trust. A pooled trust is also commonly known as community trust. They are typically managed by nonprofit organizations. Funds are contributed by many different families, and the pool is used to support all of the beneficiaries. They allow all family members to contribute to the fund. The nonprofit organization selects a trustee who manages the finances for your disabled loved one.
Selecting the right option is, as with many other elements of estate planning, critical. The attorneys of KLG Estate Planning & Probate Attorneys are seasoned pros and can help your family pick the right path.