You can establish a special-needs trust for a disabled loved one, and you can fund it during your lifetime and after. However, if you're not careful about how you go about the process, you can cause your loved one to lose their government benefits. Here's a look at how the government benefits can work and not work with your trust.
Learn What a Special-Needs Trust Is
Like other types of trusts, a special-needs trust, or SNT, allows you to leave funds and property for someone with a disability. The trust can help to take care of that person and maintain their quality of life after you pass.
You can also fund an SNT while alive but should generally avoid doing so. If you fund the trust while living, you can fall victim to a myriad of gift-tax stipulations.
You can instead just pay for things from funds under your name. If you must fund the trust while alive, you should talk the matter over with both a probate attorney and a tax professional first.
Know That the SNT Trustee Will Have Control
The SNT will have a trustee who controls the trust. You can appoint the trustee or give someone else the power to appoint one. The trustee will control the trust completely and will have the duty of taking care of your loved one responsibly.
The main issue, as it concerns government benefits, is that administering the trust incorrectly can clash against government benefit requirements. This can happen if you're funding the trust while alive or if the trustee makes the wrong decisions after you pass.
Learn How an SNT Can Help or Hinder Receipt of Government Benefits
Government benefits come with strict requirements. The beneficiary of an SNT has no direct control over the trust and so bypasses some of the main income restrictions of social-security benefits and Medicaid. In addition, an SNT can supplement government benefits by allowing the trust to give your loved one a home and a vehicle.
The trust can also pay for
- large and small household goods
- schooling and occupation training
- services and utilities.
The trust can pay for care that government benefits don't fully cover. So the trust can represent a full umbrella of auxiliary service and care for your loved one.
Problems can arise if you or the trustee dole out anything the government considers a countable resource. These can include cash and anything tied directly to money, such as bank accounts or stocks.
While much of this applies to SSI and SSD, it also applies to Medicaid and other state programs. You or the SNT trustee must show great care when administering the trust if you want to avoid exceeding the allowable income or resource limits. If the trust is mismanaged, your loved one could lose their benefits for a time or for good.
Go Over Your Special-Needs Trust with a Probate Attorney
You should discuss your SNT with a probate attorney or stipulate that the named trustee do so after you pass. A probate attorney can advise on how to handle the SNT and instruct the trustee on best practices for administering it after your passing.
There's a good chance your SNT will play just one part of your larger estate. It's a good idea to have a probate attorney walk you and your trustee through how the probate process will work with the inclusion of a special-needs trust.
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