Many families include at least one individual with special needs. Specific situations can vary greatly, from some that have only relatively minor disabilities to those who require much greater levels of care. But one concern is common to a large proportion of these families. What is the best way to secure and manage the funds needed when the disabled person becomes a legal adult, or looking further, if they outlive their caregivers in the family?

One option that may make sense for many families is a supplemental needs trust. A supplemental needs trust can provide income for a disabled family member while not putting in jeopardy their financial eligibility for government benefits.

Generally, once a person is a legal adult at the age of 18, they can lose their eligibility for some programs such as Medicaid and Supplemental Security Income if they have assets in excess of $2,000. A supplemental needs trust allows the funds in the trust to be used to help the beneficiary, while that person does not own the assets of the trust.

An individual supplemental needs trust can be created in a variety of ways including from the proceeds of a life insurance policy. Those funds can be very useful to the beneficiary to cover expenses for which government benefits are insufficient.

When creating the trust a trustee must also be chosen. This is of course an important decision and involves many of the same factors discussed in this space last week in the discussion about choosing an executor.

While each situation involving a family with special needs is unique. It is always important to develop a comprehensive estate planning and trust strategy that will allow for the right amount of flexibility without jeopardizing other avenues of assistance.

Source: Reuters "Putting the special in special needs trust" Toddi Gutner, March 4, 2011

Tags: trusts, supplemental needs trust