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The Value of a Special Needs TrustĖThe Estate Planning Dilemma Facing a Disabled Loved One

Do you have a loved one with a physical or mental disability, you face a difficult dilemma?

You might wish to provide financial assistance to your loved one for special tools and resources, which can improve your family member‚??s quality of life.¬† However, this altruistic act can go terribly wrong.¬† The current system designed to deliver public benefits for medical care and financial assistance to the disabled often penalizes such acts of love and support.¬† These types of financial gifts from family members frequently disqualify a disabled individual from receiving needed public benefits.¬† This unintended consequence of an act of kindness by a loved can be circumvented through the use of a special needs trust.

The traditional approach to handling legacy succession for disabled loved ones was to ‚??disinherit‚?Ě the child receiving government assistance based on financial means testing.¬† The disabled family member‚??s share was left to another family member (usually a sibling) with the understanding that the funds would be used for the care and support of the disabled family member.

Inadequate Estate Planning

Leaving assets or money to a disabled loved one can disqualify a disabled individual from receiving Medicaid, SSI, state benefits, and other forms of government assistance that are subject to means testing.¬† Even a well-crafted ‚??spendthrift‚?Ě trust will not prevent this harsh outcome because these types of government assistance are referred to as ‚??necessary services.‚?̬† Trust law permits public entities that provide these services to reach the assets of a properly drafted spendthrift trust.

Protect Yourself and Your Family with a Special Needs Trust

Special needs trusts provide the opportunity for parents to leave assets to a disabled child without exposing the assets in the trust to the reach of government entities or disqualifying the recipient from public assistance.  For example, this type of trust allows a parent to make financial resources available to a disabled family member without risking access to health care benefits throughout Medicaid or Supplement Security Income (SSI) for disabled low-income individuals with special needs.

The special needs trust (SNT) involves a legal relationship between the individual (grantor) who gifts funds to a trustee solely for the benefit of the disabled beneficiary.¬† The basic objective of the fund is to protect the assets in the trust, which is to be utilized to enrich the beneficiary‚??s (i.e. disabled family member‚??s) quality of life.¬† The traditional approach without use of a special needs trust posed potential issues because the sibling managing the funds might experience legal problems with creditors, suffer an incapacitating injury, or die before the disabled child.

Care must be exercised in the creation and administration of any type of special needs trust. The language of the trust agreement must clearly articulate the intent of the grantor that the assets are not to belong to the disabled child.  The document also must indicate that the funds are intended for limited and specific purposes for the benefit of the disabled loved one.  The person designated as the trustee must fully appreciate the rules governing this type of trust to avoid undermining the legal status of the trust as an independent legal entity.  The process of drafting a special needs trust should be undertaken by an experienced Virginia Beach estate planning attorney because government authorities could closely scrutinize the trust.

If you have questions about setting up a trust that will provide financial support for a disabled child without threatening the child‚??s eligibility for public benefits, you should speak to an experienced Virginia Beach estate planning lawyer.

Linda Shin
About Linda Shin

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