Protecting benefits and financial resources as well as provide peace of mind!
A Special Needs Trust (SNT) can play an important role in a families plan for children with special needs. Today there are avenues such as ABLE accounts that can assist individuals in protecting both financial and public benefits, however, a SNT can play a significant role in providing peace of mind for parents and family members. Below are a few key reasons on how a SNT can provide both protection of benefits and financial resources as well as provide peace of mind.
1 – Preserve public benefits while enhancing your child’s lifestyle.
As adults, many individuals with significant special needs obtain basic support from Supplemental Security Income (SSI), which also is the gateway to Medicaid and other critical programs. Since SSI covers only essential expenses, most parents want to supplement their child’s lifestyle. But because SSI imposes limits on income and assets, providing funds to the child directly can jeopardize benefits eligibility. Generally, the best solution is placing funds in an SNT. The Social Security Administration (SSA) does not count assets in an SNT as income for determining benefits eligibility because the assets are owned by the trust rather than the child beneficiary.
2 – Allow others to contribute.
If you establish the trust now, grandparents and others interested in helping your child can make annual gifts to the SNT of up to $15,000 ($30,000 for a married couple) without triggering the gift tax or generation-skipping tax. Anyone interested in leaving their child money should be advised to direct bequests to the SNT.
3 – Fund the SNT as you wish.
SNTs can be funded with cash, securities or other resources. Often, a second-to-die life insurance policy offers the most affordable option, enabling a family to fund an SNT without depleting assets required for other household needs. If assets in an Individual Retirement Account (IRA) will represent a large portion of your estate, it’s important to speak with an attorney about the most tax-efficient way to transfer those assets to an SNT.
4 – Ensure assets will be used as intended.
With an SNT, distribution of assets is directed by trust documents as well as SSA and IRS guidelines. By comparison, if you leave assets to an “able-bodied” child and ask that some of the funds be used for the sibling with special needs, the child may fail to honor your request, lose the assets to creditors or die prematurely and leave the funds to his or her own children.
5 – Protecting assets from creditors or providing assets in divorce.
Not everyone with a disability qualifies for SSI or other government programs. However, you may still want to use a special needs trust structure for their protection. Like most trusts, a special needs trust can be effective in protecting assets if your beneficiary were ever sued or if they go through a divorce.
6 – Maximize the benefits of a personal injury settlement.
If your child wins a sizable settlement, having the payout (often a lump sum plus a structured settlement) directed to a self-settled SNT offers several benefits. Your child will still qualify for public benefits, can use settlement funds for nonessential expenses and may enjoy the financial security of receiving regular payments for life.
7 – Putting a trustee in place.
One of the primary benefits of a trust structure is the ability to appoint a trustee to manage investment decisions and oversee the distribution of assets. If you have a beneficiary who is unable to manage finances independently, the trustee fills an important role of watching over the assets and administrating spending decisions. The trustee is also required to ensure that assets are used according to the initial intentions.