There are numerous steps that you can take to give money to your loved ones after you pass away. You should understand all of your options, consider the life situation of each person in the family, and make informed choices.
With the above in mind, let’s look at the value of third party special needs trusts.
People With Disabilities
If you want to provide resources for a person with a disability, you have to take government benefit eligibility into consideration. Many people with special needs rely on Medicaid for health insurance. This is a program that is available to those who can demonstrate financial need.
To determine financial need, there are income and asset limits. Eligibility is not necessarily permanent. A significant improvement in financial status could result in a loss of eligibility.
Setting aside resources for a family member with special needs in the wrong way can cause the family member to lose that medical insurance.
In addition to the Medicaid program, there is the Supplemental Security Income program. As the name would imply, SSI provides ongoing income to people who cannot earn much on their own. This too is a need-based program so eligibility could be jeopardized if a benefit recipient was to come into a significant sum of money.
Special Needs Trusts
You can potentially take care of a loved one with a disability without impacting government benefits through the creation of a special needs trust.
There are two types of special needs trusts: self-settled or first party special needs trusts, and third party special needs trusts.
A first party special needs trust is funded by the beneficiary with the beneficiary’s money. The funding could come through a personal injury settlement, insurance policy proceeds, or an inheritance the beneficiary has received.
Where this type of trust is permitted, funds from the trust could be used to provide for the supplemental needs of the beneficiary without impacting government benefits. Supplemental needs would be needs that are not satisfied by the government benefits.
However, the government would seek reimbursement from the trust after his or her passing.
A third party special needs trust, on the other hand, is funded by someone other than the beneficiary. With a third party special needs trust, the trustee can use the assets in the trust to satisfy the supplemental needs of the beneficiary.
However, the assets were never put directly in the hands of the beneficiary so there is no reimbursement requirement with a properly drafted special needs trust. The reimbursement requirement is one big difference between a self-settled or first party special needs trust and a third party special needs trust.
Free Report on Special Needs Planning
It takes careful planning to properly provide for a loved one who is enrolled in government benefit programs. If you would like to learn more about special needs planning, download our free report.
This report will provide you with a great deal of in-depth information, and you can access your copy through this link: Ashland KY Special Needs Planning.