Trusts are among the most adaptable tools in estate planning. Depending on how it is designed, a trust can go into effect during your life or upon your passing. Wealthy families often use trusts to protect their assets and provide for future generations, or to provide a legacy in the form of a charitable trust. But trusts aren’t just for millionaires to provide for their millionaire children. Trusts can also provide life-long support for the most vulnerable people.
Families can create a special type of trust that will provide income and pay for care for a loved one who has special needs. Known, appropriately enough, as a special needs trust, this type of estate planning tool can be adapted to many situations and last for as long as it is necessary.
The key difference between special needs trusts and other types of trusts lies in their relationships to benefits programs. To explain why, first we should briefly discuss the basics of trusts.
A trust is essentially a way to divide ownership in property between a trustee and a beneficiary or beneficiaries. The trustee has a fiduciary duty to protect the assets in the trust for the benefit of the beneficiary, and typically pays out part of the assets to the beneficiary on a regular schedule, which is set by the terms of the trust. For instance, in a typical trust, a trustee might manage the assets in a fund and then draw checks on the interest from that fund in order to pay the beneficiaries on a quarterly basis.
However, this typical trust arrangements can create problems when the trust is meant to provide income and/or pay for care for a person with special needs, particularly when the beneficiary is someone who also receives benefits from Social Security, Medicaid and other government programs where the benefit amount is tied to the recipient’s income.
The financial well-being of these vulnerable individuals can be caught in a bind. If the beneficiary’s income from the trust is too high, they won’t be eligible for the government program. But, since the price of medical care and other expenses is increasing, these beneficiaries may not be able to pay for their care without the government programs. If all their expenses are coming out of the trust, they may quickly exhaust the assets in the trust, leaving them with nothing. On the other hand, the government programs may not provide adequate benefits to take care of their needs.
With the help of an experienced estate planning attorney, families can create a trust that manages assets in a way that won’t interfere with the beneficiary’s access to important benefits.