Special Needs Trust Protects the Disabled

A special needs trust can be an important estate planning tool for families who wish to enhance the life of a relative with special needs while preserving the individual’s eligibility for government assistance.

The trusts – also known as supplemental needs trusts – set aside assets to benefit a disabled person. The assets are controlled by a trustee – not the beneficiary – and, as a result, are not considered the property of the disabled person.

According to the Social Security Administration, a disabled adult may receive Social Security Income if their resources are worth no more than $2,000.  The SSA counts real estate, bank accounts, cash, stocks and bonds, but exempts the home the disabled person lives in and the land it is on. Also excluded are life insurance policies with a face value of $1,500 or less; family burial plots; up to $1,500 in burial funds for both the disabled person and his or her spouse; and, in most cases, a car. Disabled people who live in certain public institutions may not qualify for SSI. Income limits, which vary from state to state, also apply.

Public assistance can include SSI of about $400 a month, food stamps, and medical care. A special needs trust can preserve these benefits, providing basic necessities, and also give a disabled person additional comforts. The trusts typically pay for education, recreation, counseling and needed equipment, such as a specially fitted van, said the Academy of Special Needs Planners on www.specialneedsanswers.com.

The trusts fall into two main categories, first-party special needs trusts and third-party special needs trusts. First-party trusts are also known as pay-back trusts because any assets remaining in the trust at the death of the beneficiary go to reimburse state agencies.
First-party trusts are created by the disabled person and are typically funded with the settlement from a law suit or an inheritance. Third-party trusts are typically created by family members, and funded with gifts or through a will or life insurance policy.

A third type of trust, a pooled trust, combines contributions for two or more disabled individuals. The trust can be created by family members, a guardian, court or by the disabled individual.

Special needs trusts are one of several types of trusts investors can use to efficiently transfer their wealth to others. Trusts offer many advantages. Some allow property to appreciate tax-free and others shelter assets from estate taxes. Trusts can also protect wealth from creditors and spend-thrift family members.

Spectrem research shows that wealthier investors are more likely to hold assets in the legal structure of a trust, yet more than half of investors with a high net worth - $5 million to $25 million excluding their residence – have not created trusts. Investors are lower wealth levels are even less likely to do so.

“Transfer of wealth is an often neglected aspect of financial planning, even though it concerns the future financial well-being of children and grandchildren,” said Catherine McBreen, Spectrem’s managing director.

Copyright 2011 by MillionaireCorner.com