There are three key issues to address when establishing a special needs trust. Choosing the right trustee or successor trustee is important. Ensuring there is adequate funding for the trust is also a top priority.
Establishing a reasonable structure for the trust is also critical to the longevity of the trust itself. Special needs trusts may need to include highly-specific rules about distributions, including limitations on monthly disbursements that help maintain benefits, as well as standards for asset use that prevent the squandering of resources to ensure a lifetime of access and support.
What types of restrictions are most important when establishing a special needs trust?
Plan for benefit eligibility
There are strict rules that govern eligibility for Medicaid, housing benefits and other forms of support often available to those with debilitating medical conditions. For Medicaid in Illinois, for example, applicants generally cannot have income that exceeds 350% of the federal poverty level for their household size.
Moving assets to a trust can help a person with special needs ensure that they are eligible for benefits by limiting their countable resources. Controlling distributions helps ensure that their income from the trust does not negatively affect their eligibility.
Consider the need for lifetime support
Distribution restrictions help preserve key resources within the trust, which is important for the long-term financial support of the beneficiary. For example, transferring the family home to the trust can help ensure that the beneficiary stays in the same home for their whole life. The grantor can then arrange for another party to inherit or assume control over the home.
Working with an experienced estate planning attorney when creating a special needs trust can help people address common concerns. A well-funded and structured trust can provide a lifetime of supplemental support without impacting eligibility for critical benefits, if it is constructed properly.
