Considering the level of uncertainty in the world right now, it's more important than ever to protect our loved ones, especially those of us who have children or family members with special needs who aren't fully capable of taking care of themselves. Below is a summary of a special needs trust which is a special type of trust geared toward protecting family members with special needs.
A Special Needs Trust is a type of trust that helps a beneficiary with special needs receive an inheritance without jeopardizing public assistance or benefits, such as Medicaid/TennCare or Supplemental Security Income (“SSI”).
If you have a child or other beneficiary who has special needs, you want to provide them the best opportunity for a full and meaningful life, just like you would any other child or beneficiary. However, if you leave assets to them directly, it could jeopardize their eligibility for public assistance or other income-based benefits that they receive.
Here's a quick example: Susan is leaving assets to her son, Jackson. Jackson has special needs. Susan loves Jackson and wants the best for him, but she knows Jackson will have unique challenges in life. Counting her home, savings and another retirement, Susan has about $500,000 in assets and she has two children, Jackson, and Abigail. Both her children are now adults and Abigail is in college. If Susan leaves assets to Jackson, he’d be ineligible for most income measured public benefits. Susan could leave all the assets to Abigail and ask her to watch out for Jackson. However, if Susan did that, the funds intended for Jackson could be lost or compromised if Abigail had financial difficulties from creditor issues, divorce, mismanagement, etc. Plus, Abigail would have to count the assets intended for Jackson in her finances for things like loans, credit applications, taxes, etc.
Susan could leave the inheritance intended for Jackson in a Special Needs Trust for him. Abigail could be the trustee of that trust and distribute from it for Jackson’s special needs and care. This would allow the funds to be used for Jackson to enjoy life through education, vacations, and other “special needs” without jeopardizing his public benefits. Also, if Abigail had creditor issues, her creditors could not attack the assets in Jackson’s Special Needs Trust.
In this scenario a Special Needs Trust does 3 things: 1) It ensures Jackson receives the full benefits of his inheritance from Susan, 2) It assigns responsibility to Abigail who will have his best interest at heart after Susan is gone while still protecting Jackson's interests, and 3) It makes sure Jackson won't be disqualified from assistance and benefits because of his inheritance.
A Special Needs Trust is an amazing tool. If you have questions about Special Needs Trusts or any type of Estate Planning or Probate questions, please reach out and let us help you.