When you are considering your estate planning options, you may have a pretty good idea how you want to leave your assets to the next generation. If you have a disabled loved one, however, you might be wondering how you can show your care and support of that person without jeopardizing the government benefits they depend on. Luckily, there is an estate planning tool for that: the special needs trust.
What is a special needs trust?
You can use a special needs trust to provide financial support to your loved one with a disability who is on government benefits. Often, they are part of the Medicaid program with federal and state health insurance coverage. They may also be on Social Security Disability. These programs may limit the amount of assets that person can have in their name.
When you set up a special needs trust, you must follow very specific rules regarding how the trustee can distribute the money in the trust to the trust beneficiary. As long as you follow the rules, the government won’t count the trust against your loved one’s asset limit. The idea behind the special needs trust is to set aside money for items that Medicaid won’t normally cover, such as going to a movie with the family, school tuition or even basics like clothing.
How is a special needs trust different from a regular trust?
Normally, when you set up a trust for yourself and your loved ones, you can dictate the terms. You can state who will receive the money, when they will receive it, and when and how you want the trust to end. A special needs trust has several differences. Here are just a few:
- The beneficiary cannot have direct access to the money. The trustee must make payments directly to a vendor or proprietor.
- No commingling of funds. The trust must be funded either completely by outside money or completely by the beneficiary’s own funds. A single trust cannot contain both. You can set up two separate trusts, however.
- Complicated administration. Because of all the rules and regulations regarding a special needs trust, administration can be more complicated than a traditional trust. Some people choose to use professional trustees for this reason.
- Remaining funds go to the state. A special needs trust set up with funds from the beneficiary must state that any funds remaining in the trust after the beneficiary dies goes to the state for Medicaid reimbursement. A trust funded by a third-party can name anyone as a beneficiary for the remaining funds.
Are there other options?
There are other options for certain disabled people in Indiana. ABLE accounts are a relatively new option for people who were disabled before they turned 26, and work in a similar way to a special needs trust. Indiana ABLE Authority administers all ABLE accounts in Indiana, and can be used for “qualified disability expenses,” such as education, transportation, and personal services. Individuals over 65 may be eligible for a “pooled trust.”
If you have a loved one you wish to include in your estate plan, but you have concerns about their government benefits status, a special needs trust may accomplish your goals without jeopardizing the assistance they rely on.