Basics of Special Needs Trusts

Recently, we discussed how trusts can be used in estate planning to avoid uncertainty regarding the distribution of a given person’s estate. Specifically, we discussed the ins and outs of the so-called “testamentary trust,” which is the moniker given to trusts which are designed to come about following a person’s death. In our post on testamentary trusts, we mentioned the fact that trusts are among the most versatile instruments in the legal-financial world. Trusts can be tailored to suit a wide range of purposes. In this post, we’re going to discuss one of these many variations: the special needs trust.

Overview of Trusts

A trust is a legal entity created by a “settlor” for the purpose of providing benefits to the beneficiary. The beneficiary is simply a person selected to reap the benefits of the trust. The trust is managed by a trustee. The trustee has a fiduciary responsibility to manage the trust responsibly and act in the best interests of the beneficiary.

Rules & Finer Points on Special Needs Trusts

A special needs trust is established by a settlor for the purpose of delivering financial benefits to someone who suffers from a physical or mental handicap. The key benefit of a special needs trust is that it is designed in such a way as to preserve the beneficiary’s eligibility for public assistance. When the beneficiary receives assistance from the trust, the assets in the trust are not counted in the beneficiary’s gross income. This allows the beneficiary to maintain eligibility for additional public benefits. Many public assistance programs have income restrictions or limits; the special needs trust works around this problem. In order for the beneficiary to maintain this eligibility, the proceeds from the trust cannot be used for specific things, such as certain types of food and housing costs.

To avoid complications, the settlor should ensure that none of the beneficiary’s own funds are placed in the trust. Not only do special needs trusts provide assistance to beneficiaries, they also ensure that the assets of the settlor are used for their intended purpose. In some cases, settlors may choose to give funds to a third-party with the directive that those funds be used for the care of the beneficiary. However, when this occurs outside the context of a trust, there is no guarantee that the third-party won’t simply abscond with the money. Special needs trusts guarantee that the beneficiary receives the intended assistance from the settlor.

Special needs trusts can be tricky to set up because they require specialized language and involve complex concepts and terminology. This is why you should obtain the services of an experienced attorney during the process.

Contact the Denise Jomarron Legal Group

Want to learn more about special needs trusts, testamentary trusts, or other kinds of trusts? Reach out to the Denise Jomarron Legal Group today. We can help you on a wide range of trust-related issues. Give us a call now at (305) 402-4494.

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