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Special Needs Trusts: Protecting Your Loved One’s Financial Future

Special needs trusts are important tools to protect the assets of a disabled child, spouse, relative or friend. In most cases, parents establish a special needs trust to protect their disabled child in the future when they are gone. Many older couples also set up special needs trusts for their elderly surviving spouse. These types of trusts are known as third party special needs trusts because they are funded with assets belonging to a person other than the beneficiary (the disabled person).

Special needs trusts are used as an important instrument to retain a disabled person’s eligibility for government benefits for health care and financial assistance and to ensure they are financially sound in the future when parents or other loved ones may no longer be around to support them. A third party special needs trust benefits those who have a disability and who qualify for Medicaid and Supplemental Security Income (SSI) or those who do not have the capacity or capability to manage their own assets. To qualify for Medicaid and SSI a person must be disabled, which is defined as “not being able to engage in any substantial gainful activity because of a medically-determinable physical or mental impairment(s): 1) that is expected to result in death or 2) that has lasted or is expected to last for a continuous period of at least 12 months.” A disabled person must make less than an average monthly earning of $1,070.00 to qualify for government benefits.

Virtually any type of property can be held in trust (real estate, stocks, collections, a business, patents or jewelry). One of the primary purposes of a special needs trust is to use money to pay for items that are not provided by Medicaid or SSI. Special needs trusts are essential to disabled people who receive government benefits because the beneficiary does not have a legal claim to the property in the trust so the assets are not counted toward the beneficiary’s resources and do not interfere with the beneficiary’s eligibility for government benefits. The beneficiary can use all the assets owned by the trust, but funds cannot be distributed directly to the beneficiary. Funds given directly to the beneficiary are considered the beneficiary’s own resources and will affect his or her ability to receive government benefits. Instead, the trustee must pay for goods and services on behalf of the beneficiary. Trust funds can be used to pay for any good or serve that would benefit the beneficiary, such as 1) education, 2) caregiving not paid for by Medicaid, 3) experiences, such as travel, concerts or museum visits, 4) services, such as cell phone, internet, gym membership or cleaning service, 5) pet care or 6) things, such as computers or clothing.

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