When creating an estate plan, a trust is a tool that you can use to hold assets. It is essentially funded with your own financial assets – or tangible assets – and then these can be transferred to the beneficiary by the trustee. For example, you could put $100,000 in a trust and tell the trustee to give the beneficiary $10,000 per year for the next decade.
A special needs trust, then, is a trust that is intentionally set up for a beneficiary who already has special needs. This could mean that they can’t work or will have other financial challenges, like high healthcare costs. Clearly, creating a trust for them can be highly beneficial for their future, as the money can help them navigate some of these challenges. But there is one benefit when using a special needs trust, as opposed to a direct transfer.
It can help preserve government benefits
If your beneficiary has special needs, they may be receiving government benefits. For instance, maybe they qualify for assistance with housing.
If you give that beneficiary money in your will, then they may no longer pass the means test. The government will say that they have too many assets and they need to spend the money down and then apply for benefits again.
But if you put the money in a special needs trust, then the beneficiary doesn’t own it and it isn’t counted among their assets. There may still be some restrictions on how they can access and use it, in the sense that they can’t use the money for the goods or services that are being purchased with government benefits. But, the money can be used for their benefit in other ways, helping them supplement their lifestyle without denying them the benefits they need.
It is very important to set all of this up correctly, so be sure you know what legal steps to take.