All About Special Needs Trusts

Feb 16, 2021
Estate Planning Special Needs Trusts

Often, persons starting on their estate planning journey have a keen eye on their beneficiaries: this is why living trusts are so popular, as living trusts often allow our clients to pass down big-ticket assets like property without the hassle of probate. However, if you happen to have a person with special needs in your life, the estate planning process becomes even more important.

What should I know about special needs trusts? 

If your loved one with special needs receives Supplemental Security Income from the government, it is imperative that you keep this in mind. Even if you, personally do not have an overly-large estate to manage, making a misstep here can cost your loved one his or her SSI benefits, which include vital access to Medi-Cal or Medicaid. Preserving these benefits for your loved one is likely essential, and the US government understands this. This is the reason why so-called “special needs trusts” exist in the first place. These trusts will help you improve your loved one's quality of life without putting them in peril of losing necessary medical care.

How are special needs trusts different from regular living trusts?

As a general rule, an individual on SSI may not hold more than $2,000 in his or her own name. This obviously has the potential to be very problematic concerning a potential inheritance, particularly if the individual in question comes into a large one. However, the government will allow a beneficiary of a special needs trust to continue receiving SSI benefits, no matter how large the inheritance.

The reason why special needs trusts work is because the beneficiary is not the direct owner of the funds in the trust. Essentially, a special needs trust will help improve your loved one's quality of life while he or she is still living.

What are the different kinds of special needs trusts? 

The two main variants of special needs trusts are first-party (where the beneficiary puts his or her own funds into a trust of his or her own accord) or a third-party trust (where somebody puts their own assets into the special needs trust on behalf of the beneficiary).

A first-party special needs trust comes about when an individual with special needs unexpectedly has an inheritance or has excess savings. A first-party special needs trust allows the funds in the trust to better the life of the person in question without disqualifying him or her from SSI.

If you are planning your estate, you would be creating a “third-party” trust. The main difference between a third-party and first-party special needs trust is that first-party is their funds, while third-party is a family member or another party‚Äôs funds. So when your loved one dies, leftover assets can go to other family members or to a charity of your choosing. The funds do not have to reimburse the government, similar to a regular living trust.

Contact us today at AmeriEstate to learn more about special needs trusts.