Trusts can be used for a multitude of purposes. Some people use them to reduce the total value of their estate. Others use trusts to leave an inheritance to a beneficiary for a specific purpose, such as funding a college education.
With a special needs trust, the goal is to provide an inheritance to a beneficiary who has special needs. This person may distinctly need the inheritance if their condition makes it impossible for them to work and results in a highly limited income. Many parents plan to leave assets to their adult children or grandchildren with special needs so they can provide care and financial assistance moving forward. The trust sets money aside for that individual.
Protecting their benefits
In addition to passing on the inheritance, the special needs trust does so in a way that can protect the beneficiary’s access to benefits. A person who has special needs may apply for and be granted certain government benefits that could cover costs such as food, housing or healthcare. They may have been using these benefits for years already.
However, to be granted access to these benefits, they must pass a means test. Leaving someone a significant inheritance as a cash gift could mean that they no longer pass the means test. They would then have to spend down the gift and reapply for the benefits.
Since the beneficiary does not technically own the special needs trust and cannot access it except with the assistance of the trustee, it does not count against them for purposes of the means test. They still get to keep their benefits, and the money in the trust can then be used to provide them with financial assistance in other areas that are not covered.
Establishing a trust
A special needs trust is just one potential estate planning tool to consider. If you would like to set one up, take the time to look into your legal options.