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Using a special needs trust to care for a loved one

If you have a loved one who has a disability, you may want to use your estate plan to improve his or her quality of life. Still, if your loved one is eligible for government programs, you do not want a cash gift to interfere with the funds he or she receives.

A special needs trust holds money for the benefit of your disabled individual rather than transferring funds directly to him or her. Consequently, disbursements from the trust typically do not count as income for purposes of needs-based government help. 

Allowable expenses

Needs-based government benefits, such as Supplemental Security Income or Medicaid, provide meager financial assistance for everyday expenses. Disbursements from your special needs trust must not pay for these same costs.

For example, the funds from the trust are not meant to cover housing, utilities, food or basic medical care. Nevertheless, disbursements may pay for items, services or experiences that  supplement needs-based government funds. 

These may include the following: 

  • Out-of-pocket medical care, co-pays and personal assistants 
  • Educational and job-related expenses 
  • Recreational, athletic and travel costs 

Critical management

You have worked hard and want to protect your wealth. When you set up a special needs trust, you give critical management duties to a trustee. This individual complies with tax and reporting requirements.

He or she also ensures disbursements from the special needs trust do not inadvertently harm your loved one’s eligibility for government assistance.

The real benefit of a special needs trust is guaranteeing your loved one has enough resources to enjoy his or her life. Still, knowing your special needs trust is in good hands may put your mind at ease.

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