For families caring for a loved one with a disability, estate planning often involves more than just deciding who will inherit what. If that person receives government benefits, an inheritance could potentially affect their eligibility for those benefits.
A special needs trust addresses that concern by allowing assets to be held for a person with a disability while helping preserve eligibility for certain government programs. But what makes a special needs trust different from other types of trusts?
What is a special needs trust?
A special needs trust is a trust established to benefit a person with a disability while still allowing them to qualify for certain means-tested government benefits. Rather than replace government benefits, the trust can provide additional resources to improve the beneficiary’s quality of life while still preserving access to essential programs.
Special needs trusts can help pay for expenses that government benefits may not cover, such as:
- Transportation
- Education
- Recreation
- Assistive technology
- Clothing and personal items
- Personal care
Trusts are valuable estate planning tools that may be created for tax planning, asset management, charitable giving or protecting assets for beneficiaries. The primary goal of a special needs trust is to protect access to needs-based government benefits while providing supplemental financial support.
However, simply putting a person’s inheritance into a document labeled “special needs trust” doesn’t automatically make the assets exempt from government-benefit programs. It must be carefully drafted and administered to meet requirements set by the Social Security Administration.
One important distinction involves control of the trust assets. A properly structured needs trust can allow someone other than the beneficiary to manage the assets for the beneficiary’s supplemental needs.
Trust distributions can also affect benefits. Money paid directly to an SSI recipient can reduce SSI benefits, while benefits made to third parties for goods and services may be treated differently.
A mistake in a special needs trust document or in the way the money is distributed could have unintended consequences. Working with a legal professional is essential to helping ensure the long-term support of a loved one with a disability without unnecessarily jeopardizing important benefits.
