How a Special Needs Trust Protects Your Child

When a child in your family is living with a disability that qualifies them for government benefits, establishing a special needs trust can ensure they are financially secure. This part of your estate plan can become critically important when you pass away and are no longer able to care for your child’s welfare.

In a nutshell, special needs trusts are important because they allow a beneficiary to receive funds from inheritances, gifts from family members, lawsuits, and more without the risk of losing eligibility for certain government programs. If your loved one depends on support from Medicaid and Supplemental Security Income (SSI), a special needs trust can help them receive money from other sources without it affecting how much they get from these programs.

First-Party Trusts

When a beneficiary has assets of their own, a first-party trust holds on to them for safekeeping. During life, the beneficiary can use the funds as they please. When they pass on, whatever’s left will be sent to the government as repayment for the cost of their medical care. These types of trusts leave someone with a small or large personal fortune free to enjoy it while still qualifying for Medicaid and SSI support.

Third-Party Trusts

If you’re the parent of a special needs child, this type of trust is the one use most often by other parents with children like yours. When you establish this trust, any asset or property you own can be placed within it – that means stocks, bonds, bank accounts, homes, vehicles, personal property, and quite literally anything you’d want them to have.

Like a first-party trust, whatever’s in a third-party trust has no bearing on your child’s qualification for support from government programs. When your child’s financial needs exceed such support, they are free to use what’s in the trust without fear of losing their benefits.

An important note to bear in mind, however, is that third-party trusts don’t require payback to the government for medical care costs. If the trust is still funded when the main beneficiary dies, whatever’s left can pass to subsequent beneficiaries or charity.

Pooled Trusts

Established by non-profit organizations, pooled trusts allow beneficiaries to pool their resources for investment while retaining separate subaccounts for each beneficiary. Like a first-party trust, a beneficiary’s account is used to reimburse the government for their medical care, but a portion is kept by the charity managing the trust. As is true of the other two kinds of trusts, this one lets beneficiaries continue to receive support from government programs unimpeded by assets in the trust.

Can Life Insurance Policies Pay into a Special Needs Trust?

Yes. If you have an active life insurance policy, it can pay directly into a special needs trust without undergoing probate or becoming subject to taxes on your estate. An important consideration is to ensure your policy pays to the trust, not your child. If the opposite is true, the payout will get whittled down by unnecessary taxes and fees. The remaining portion of the payout can then harm your child’s eligibility for government benefits because they receive it directly, rather than through the special needs trust.

Achieving a Better Life Experience (ABLE) Accounts

When someone becomes disabled in their youth, an Achieving a Better Life Experience (ABLE) account can allow them to benefit from tax-free contributions of up to $15,000 a year until they reach 26. Anyone can contribute to this account, even the beneficiary themselves.

The funds in these accounts can be used for someone’s medical treatment, college tuition, rent, and other such costs. Important considerations, however, include the $100,000 limit before Medicaid and SSI support can become threatened by an ABLE account. As with first-party and pooled trusts, whatever’s left in an ABLE account upon a beneficiary’s death is used to pay back the government for its support before undergoing probate.

Helping Families Support Their Loved Ones

The attorneys of Marsden Law P.C. are here for you when you want to develop a comprehensive estate plan that looks after children and other family members with special needs. When someone in your family is living with a disability, establishing a special needs trust in their name can help you rest easier knowing they’ll be cared for when you pass on.

You know the government support your child receives is vital to their way of life. Setting up a special needs trust with Marsden Law P.C. can help you pass on your assets and property without affecting their eligibility.

When you want to discuss forming a special needs trust or have other questions or concerns regarding your estate plan, turn to us for legal guidance.

Schedule a free consultation with Marsden Law P.C. by contacting us online or calling (800) 828-7854.

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