What You Should Know About Creating a Special Trust for Your Elderly Loved One

Many adults with special needs children routinely worry about how the child will survive when the parent can no longer support them. Often, leaving money directly to a special needs child can end up jeopardizing that child’s ability to receive any support from government-funded programs including Medicaid and Supplemental Social Security Income. To receive funds from these programs, beneficiaries often must have below a few thousand dollars in assets.

In these situations, special needs trusts can help to provide for the beneficiary once the parent or loved one is no longer around. Because the special needs trusts are viewed as owning assets, they are exempt from asset limit tests associated with government programs. Special needs trusts can meanwhile help to support quality-of-life improvements for a beneficiary. Special needs trusts also help to avoid situations where a family member receives funds and the other relatives are left to face the burden of this responsibility as well as the cost of care.

Due to the interest in special needs trusts, the number of these trusts has been growing substantially. Despite these benefits, special needs trusts come with certain regulations regarding who can qualify to use them as well as how earnings are taxed, which can end up influencing situations that warrant using these trusts.

What Qualifies as a Special Needs Trust

Special needs trust can only be created for a person below the age of 65 and is meant for a person with either a mental or physical disability so substantial that an individual cannot work and requires ongoing assistance from Social Security and Medicaid. A disabled individual who can still work can earn too much to qualify for government support which can negate support for a special needs trust.

No federal standard exists for regulating special needs trusts and each state has different guidelines addressing who can use a trust. Some standards require that a medical professional verify the disability of the trust beneficiary. Individuals cannot always predict a disability’s severity, though. 

If you’re uncertain if a person’s condition will improve, you should create trust paperwork. A person can create a regular trust fund with a provision that if a loved one qualifies for government benefits associated with a disability, the regular trust will convert into a special needs trust. 

In situations where a person does not require a special needs trust, the trust would still function as an ordinary trust and give a beneficiary assets based on your instructions. In these situations, a person can end up paying more for a trust than they need.

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