There are many components to think about when you are creating your estate plan. One of these is trusts, which help you to transfer assets to your loved ones without them having to use the will and probate court to get this done. If you decide that you are going to establish trusts, there are a few things that you have to think about before you can do this.
Trusts come in many forms, and each one serves a different purpose. Consider your goals and the recipient's circumstances when deciding what type of trust you are going to establish. If you have a loved one who relies on needs-based assistance to make ends meet, a special needs trust can enable you to help provide for their care without impacting their eligibility for those programs.
How does a special needs trust work?
A special needs trust places property in an arrangement that has another person managing the assets on behalf of the beneficiary. Because the beneficiary doesn't have direct control over the trust, the value of the trust doesn't count against the asset limits for these programs.
The trustee who has control over the assets in the trust can be a trusted loved one or a hired third party. It is possible for the court to appoint someone if there isn't a trustworthy individual named to manage the assets.
Instead of the beneficiary receiving money or assets directly from the trust, the trustee makes purchases for the beneficiary. This can include things like uninsured medical expenses, life care needs, furniture and even some recreational expenses.
Are the funds in a special needs trust protected?
The assets in a special needs trust are protected from creditors. This means that if the beneficiary is ever sued and a judgment is placed against them, the contents of the trust can't be touched to satisfy that judgment.
One important point to remember when you establish a special needs trust is to clearly note that the trust is for "supplemental and extra care" so that it isn't assumed that it can be used to cover basic life expenses that needs-based programs cover. You can also state that isn't a basic support trust, and other information might also be necessary.
Remember that a special needs trust is only one component of an estate plan. You must establish a comprehensive plan to ensure your wishes are followed if you pass away or become incapacitated.