Six Things to Consider When Getting a Special Needs Trust

A special needs trust makes it easy to manage the assets of a disabled person, while still allowing them to continue receiving SSI (Supplemental Security Income) from the government. This can be especially important if a person receives a large lump sum of money, for example through a will or a legal settlement. If that happens they may become ineligible for government assistance programs like medicaid or subsidized housing. While this may not directly affect the person at the moment, it may be an issue later on if they want to start receiving benefits from any of these programs.

A supplemental needs trust can ensure that a person will have access to that money, and they’ll also be able to continue receiving any government aid that they depend on. If you know someone who may benefit from having a special needs trust set up in their name, in this article we’ll look at six things to consider when setting up that fund.

1. Who Will be the Trustee?

Typically in a special needs trust there are two main parties. The trustee, who looks after the funds and administers them as needed, and the beneficiary, who receives the money. When setting up the fund it’s important to pick a reliable trustee who one can have complete faith in. They will have control over the funds and it’s important that they be reliable and financially responsible. This is especially true if the beneficiary is mentally handicapped and may be incapable of making wise decisions regarding their spending.

2. Is a Pooled Trustee a Good Fit for Our Situation?

If you’re having trouble picking someone to be the trustee of the account, you may want to consider placing the money into a pooled trustee situation. In this case, funds from multiple trusts are pooled together and managed by a non-profit organization. The beneficiary will still have access to their own account, however, the funds will be invested for them which can lead to a higher rate of return than if all the money is kept in a bank account. Placing the money under the management of a non-profit organization may be a good option if there doesn’t seem to be anyone capable of handling the beneficiary’s money, or if nobody wants to assume the responsibility of doing so.

3. Is it necessary to hire a lawyer to set up the trust?

In most cases a lawyer is not explicitly needed in order to set up a fund. There are lots of books and articles online which provide all of the information necessary for you to set up a fund yourself. However, many people do choose to have their lawyer set up their fund for them. By having a lawyer do it you’ll know that everything is setup correctly and you won’t have to worry about missing any steps or making a small mistake which may turn into a time consuming fix later on.

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4. Is a trust necessary even if we’re not worried about government benefits?

Regardless of whether the beneficiary is receiving government assistance now, it still makes sense to set up a supplemental needs trust. The trust is an easy way to administer money to someone who may not be able to manage their own finances. Also, down the line the beneficiary may wish to apply for government benefits. If the trust fund is already set up they’ll find it easy to do so, without having to go through any time consuming processes when they need the benefits immediately.

5. What can the trust funds be spent on?

When setting up a special needs trust there are certain restrictions that limit what the money can be spent on. For example, the money cannot be used to pay for basic needs like housing, food, clothing, or any medical needs which are covered by medicaid. Any of the funds from the trust that are used for these purposes will be counted as income, and may make the person receiving them ineligible for basic benefits like SSI.

On the other hand, the funds from the trust can be used to purchase a home, which may then be rented by the beneficiary using their own money. The funds may also be used to purchase furniture, vacations, trips, specialized medical procedures, or sporting equipment. However, this is an abbreviated list and if you’d like to know the full extent of what can be purchased with trust funds, you should consult your lawyer.

6. What are the advantages of a third-party special needs trust?

Unlike first-party and pooled trusts, third-party special needs trusts are funded exclusively with money that doesn’t belong to the beneficiary. For example, a family member may wish to set up a fund to provide for the beneficiary. If this is the case, a third-party special needs trust is the best option. One of the benefits of setting up such a trust is that in the event of the beneficiary’s death, no funds will need to be repaid to the medicaid program. This is because the funds were never the beneficiaries in the first place, and thus there are no repayment requirements. Also, third-party trusts have no age limit, whereas first-party trusts cannot be set up for anyone who is over the age of sixty-five.

When setting up a third-party trust though it’s important to note that under absolutely no circumstances can the beneficiary contribute to it. If they win a settlement or receive an inheritance, not so much as a single dollar can be contributed to this third-party trust. This means that should the beneficiary receive a certain amount of money, they’ll need to set it up in either a first-party or pooled trust fund. This may be a hassle to set up if you’ve already gone through the process of setting up a third-party special needs trust. That’s why it’s important to consider all of the available options before you take the time to set up a fund.