What Is a Special Needs Trust?
Parents of those with special needs will need to plan carefully for their continued care. In cases where a child is born with a debilitating illness that precludes them from gainful employment, a parent can set up a trust in the child’s name to pay for their ongoing care.
Of course, parents do this all the time for their children. They set up trusts that act as a financial safety net should their children need it. But special needs are unique in that the costs of maintaining health care and other related services for a special needs child may be much more costly. Other issues include government programs and support such as social security that may have restrictions of their own. Here, we’ll discuss some of the complexities of setting up a special needs trust for your child.
Social Security Disability and Special Needs Trusts
One of the best reasons to establish a special needs trust is to safeguard your child’s future. But then the question becomes, how do I do that without jeopardizing their ability to qualify for government benefits such as SSD? The answer is a special needs trust.
Since trusts are established on behalf of the individual, they are not considered property of the individual. In fact, those who are on SSI or SSD often establish these trusts themselves so that they continue to receive benefits while having access to this money.
While SSI and SSD don’t pay out a great deal of money, they do have the requirement that the individual receiving benefits have no more than $2000 in cash assets. In addition, assets, dividends, and other monies accrued by assets held in the trust can put the individual over the limit for income — unless they’re paid to the trust.
Additionally, these funds are shielded from creditors and lawsuits because they are not technically property of the individual. All assets held within the trust are property of the trust. So they cannot be targeted in a lawsuit nor will they be exposed to either your creditors or your beneficiary’s.
Using a Special Needs Trust to Benefit Yourself
Let’s say you’re on disability but you are awarded a personal injury settlement. If the settlement size goes over a couple thousand dollars, it may disqualify you from receiving disability. However, that money is likely not enough to sustain yourself on. What’s the solution?
You can put this money into what is called a self-settled special needs trust. There is only one caveat when you do that. Upon your passing, that money is used to reimburse Medicare or Medicaid for funds that you used.
Using a Special Needs to Trust to Benefit Your Child
With a special needs trust, you can establish either yourself or others as trustees. These trusts, in fact, can have multiple trustees. If you have a trusted stock broker, you can have them make investment decisions on behalf of the trust.
Trusts can hold just about any type of property. This includes real estate, stocks, bonds, annuities, precious metals, mutual funds, bank accounts, and even cryptocurrencies.
Aside from third-party managed trusts for which you or someone who acts on behalf of you is the trustee, there are two other types of trusts that you should be aware of. These are ABLE accounts and pooled asset trusts that are managed by non-profit organizations.
ABLE accounts were established under the Achieving a Better Life Experience Act of 2014. Since the account is funded with after-tax dollars, money coming out of the trust is not taxed at all. The trust is run by the government and it represents a very affordable option for parents who have children with disabilities. There are, however, certain restrictions on eligibility. For more information, check out the ABLE account homepage here.
Speak to a Palmdale CA Trust Lawyer
When deciding which option is right for you or your child, a Palmdale CA special needs trust attorney at Herbert Law Office will sit down and listen to what you hope to achieve with your trust. We will then draft the right trust for yours or your child’s needs. We can also advise you on pooled resource trusts and ABLE accounts. To learn more about how we can help, contact us today.