Taking care of a family member who has special needs requires a unique kind of care and devotion from those who want the best possible quality for their loved ones. But with all of the focus and attention on present needs, the caregiver can overlook the necessity of making future care plans in the event they become ill or dies.
In estate planning, people’s best intentions for a loved one usually include leaving assets in a will. This is not always the best plan for a family member with special needs, however, and it can actually backfire if those acquired assets later disqualify the special needs person from receiving government benefits.
Important reasons to establish a special needs trust
A special needs trust (SNT) is a type of trust managed by a trustee and funded with cash, real property or other assets, for the specific benefit of an individual with special needs. One of the most important reasons to set up this type of trust is that those with significant special needs are eligible for basic support through Supplemental Security Income (SSI), which can also open up Medicaid and other governmental support programs.
Because SSI provides only for basic essential needs of a special needs person, loved ones may wish to provide direct financial support in their will. Unfortunately, these acquired gifts can jeopardize their loved one’s eligibility for future government support.
An SNT ensures that assets will be used as intended, following not only trust documents but also SSA and IRS guidelines. Because the trustee has control over the allocation of assets and not the beneficiary, the trust assets that are intended for the special needs person are not factored into eligibility requirements for government programs.
SNT’s can be funded in many ways, and grandparents and other family members can contribute annual gifts of up to $15,000, or $30,000 for a married couple. Like any trust, SNT’s can also be funded with life insurance policies or IRA’s. An SNT with liquid assets can be used like a checking account to pay for the expenses of the special needs person.
If there is a personal injury settlement for a special needs individual, the award for damages can go directly to fund the SNT. In this way, they will still qualify for public assistance and can then use settlement funds as a regular source of income to provide for nonessential expenses.
For Maryland families, it is important to find an experienced special needs planner who can not only help them structure the trust to guarantee the future needs of a loved one, but also find ways of funding it to minimize tax implications.