A special needs trust is a specific type of trust used when you have a beneficiary who has a condition that means they will need extra care and assistance. This could be a physical disability, a cognitive disability, a developmental issue or something else entirely. You know that this person could certainly benefit from getting an inheritance, but you need to be careful about how you leave it to them, and a special needs trust can be used to do so.
But why is it important to put the money into a trust? Couldn’t you just write them a check or leave them their inheritance in your will? While there are many potential benefits of a special needs trust, the main one is that it can preserve eligibility for government benefits.
Passing a means test
In many cases, someone with special needs will receive government benefits that can help them in many areas of their life. However, in order to be eligible for those benefits, they have to take a means test. If they have a high level of income or simply a significant amount of assets, they can fail that test, and so they will not be eligible for the benefits that they are receiving.
In other words, that person may be eligible today, but if you left them $250,000 in your will, then they would not pass the means test anymore. They would be disqualified from those benefits and required to spend the inheritance before they could apply once again.
But you can avoid this by putting the money into a special needs trust, which means that the beneficiary does not own it. That way, the money from the trust can be used to supplement their life in other ways, while still allowing them to qualify for benefits as they did before.
As you can see, careful planning is needed when leaving assets to certain beneficiaries, so be sure you know what steps to take.
