Special Needs Trusts-What are They
Special Needs Trusts are unique trusts. You can create one to care for a beneficiary who has a disability or other considerations. In this article, we will go over what advantage Special Needs Trust offer your beneficiary and how they work.
Maintain Government Benefits
The main benefit of a Special Needs Trust is the ability to provide for your beneficiary without disqualifying them from any government benefits they may be receiving. An outright bequest could put their Medicaid, Social Security, subsidized housing, or other benefits in jeopardy. For example, a $10,000 bequest would disqualify them from Social Security Income and Medicaid benefits.
How a Special Needs Trust Works
As opposed to gifting the money outright, a Special Needs Trust will hold that money in the trust. You name a trustee that is in charge of spending money on behalf of the beneficiary. Money can never be given directly to the beneficiary, everything must be paid for by the trustee. Since the beneficiary has no control over the money, the Social Security Administration and Medicaid Offices ignore this money for eligibility purposes.
Even though the trustee has complete discretion over the funds, there are still some restrictions on what they can and cannot do. Typically, a trustee can spend money for such thing as personal care attendants, vacations, home furnishings, out of pocket medical and dental expenses, education and recreation. However, a trustee cannot use the funds to purchase food or shelter for the beneficiary, or any item(s) that could be converted to food or shelter.
Special Needs Trusts are beneficial for more than just protecting a beneficiary’s governmental assistance. First of all, you create a Special Needs Trusts to address the specific needs of the beneficiary. You can set it up in a way so as to care for their disabilities and other considerations. It also prevents a beneficiary from spending their money unwisely. Since a trustee maintains all control and must distribute the funds according to your specifications.
A Special Needs Trust can also be advantageous if the beneficiary is a plaintiff in a lawsuit. It is set up to hold the settlement funds so the beneficiary does not lose any government assistance benefits. Additionally, if the beneficiary is sued, a Special Needs Trust will protect the funds from being claimed.
Setting Up a Valid Special Needs Trust
Special Needs Trusts have certain requirements that you must meet for them to be valid. The necessary components include:
- A statement that the that the trust is to provide for “supplemental and extra care” beyond what is provided by any government assistance programs.
- A statement that the trust is not a basic support trust.
- There must be no Crummey Clause for estate tax provisions.
- It must refer to the Social Security Operations Manual and reference where it authorizes the creation of Special Needs Trusts.
- Include the required language regarding payback to Medicare.
- Explain the exemption to the Omnibus Budget and Reconciliation Act.
- Provide a copy of any relevant provisions of the United States Code.
Special Needs Trusts are important, and you do not want to be careless with their creation. Therefore, an improperly drafted trust could mean your beneficiary becomes unqualified for government benefits. Employ a qualified Attorney or experience Certified Legal Document Preparer to draft the documents for you.
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