When doing your estate planning, one option you have is to set up a trust. This is a fund that can hold different assets, such as financial assets. You can choose a specific beneficiary who gets to use the funds, and then you can pick a trustee who is in charge of distributing those funds.
If one of your beneficiaries has a disability or other special needs, then you may be interested in creating a special needs trust. On one hand, this is just a way to give that person an inheritance. If you want to leave them $100,000, you can put it in the trust and name them as the beneficiary. It’s simple and effective. But that’s not the only reason to use this type of structure.
Qualifying for benefits
In many cases, people with special needs or disabilities will qualify for government benefits or assistance. This may help them cover the cost of medical care, housing, food or other necessities. If they’re not able to work, then it’s very important for them to actually qualify for these benefits.
But the benefits may be connected to the person’s asset level. They have to pass a means test. If you just give that person a $100,000 inheritance, that could disqualify them so that they stop receiving the benefits they need.
The reason to use a special needs trust, then, is that it doesn’t count toward that beneficiary’s own assets. They can still get distributions from the trust to supplement their benefits or other income, but they won’t be disqualified because the trust technically owns the money. They can still pass the means test.
As you can see, it’s important to consider all of your legal options – and potential ramifications – when drafting an estate plan.
