How Do Special Needs Trusts Work?

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Planning for the future is a good idea for people of any age. If you have a loved one who lives with a disability, establishing a special needs trust can help ensure they have a future that is financially secure. Learn how special needs trusts work and who they benefit.

What is a Special Needs Trust?

Special needs trusts are commonly used to plan in advance for a relative who has special needs. Typically, the beneficiaries of a special needs trust are those who live with a disability and expect to have costly medical treatment, nursing home care, and special dietary needs throughout their lifetime.

Special needs trusts are beneficial for these individuals because they preserve the person’s eligibility for needs-based governmental assistance including Medicaid and SSI. Special needs trusts also make the responsibility of money management significantly easier on the beneficiary’s caretakers.

There are two main types of special needs trusts: first-party special needs trusts and third-party special needs trusts. The differences between the two types of special needs trusts include the following:

  • First-party special needs trusts: First-party special needs trusts are often used when the person with a disability inherits money or property outright. First-party special needs trusts are beneficial when a person without a prior disability owns property in their own name, later become disabled, and thereafter needs to qualify for public benefits that have an income limitation. Property included in this type of special needs trust can only be used for the sole benefit of the beneficiary.

  • Third-party special needs trusts: Third-party special needs trusts are commonly used by those planning in advance for a loved one who has special needs. Typically, the parents of an individual with a disability or special needs will establish a third-party special needs trust; this type of trust is usually funded upon the death of the beneficiary’s parents or whoever established the trust.

Who Benefits from a Special Needs Trust?

Many individuals can benefit from the establishment of a special needs trust. The main purpose of a special needs trust is to enhance the quality of life for a person with a disability by increasing the amount of resources available to them, particularly when their main supporter or closest family member passes away. Even after that time, a special needs trust helps ensure the continuation of the beneficiary’s independence.

Those who benefit the most from a special needs trust include, but are not limited to, the following:

  • Someone with permanent special needs, including blindness, developmental disabilities, Down syndrome, organic brain damage, chronic mental illness, and more

  • Someone who currently qualifies for Medicaid or SSI

  • Someone with special needs who may not qualify for benefits later

  • Someone who cannot manage finances

The Importance of a Special Needs Trust

Establishing a special needs trust will give you peace of mind that your loved one who lives with a disability will have the financial security they need to receive the long-term medical care they require. Special needs trusts ensure the disabled beneficiary receives the property and assets in the trust while still maintaining their eligibility for critical needs-based governmental benefits.

It’s in your best interest to establish a special needs trust as soon as possible so that your loved one is protected even if you become ill or incapacitated. The sooner you establish a special needs trust, the sooner your loved one will have their financial security locked in for the remainder of their lifetime.

At Legacy Enhancement Trust, we have ample experience protecting individuals in need of financial security and we want to work with you to help ensure you and your loved ones have a safe and stable future.

Contact us online or by phone today at (888) 988-5503 to learn how we can assist you.

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