Beneficiary or Benefits? The Special Needs Trust Lets Them Have Both!

If you have a relative that is disabled, he or she may qualify for government benefits. In some cases, the government will grant money to men or women who are physically, mentally, or developmentally disabled because of a birth defect, medical malpractice situation, drug abuse issue, or injury. Sometimes benefit programs like SSI or Medicaid can help to give these people the money that they need to pay for various treatments. The individual may also need money because he or she is not mentally or physically capable of having a job, so the government can step in to aid in paying the bills.

Unfortunately, if you plan to give a substantial amount of your inheritance to a disabled person, you may disqualify them for the government income they want. This is because Medicaid, SSI and other benefit programs normally only grant money to people with very limited means. That may leave you torn. You want to gift your loved one with money or part of your estate when you pass away, but you don't want to rob him or her of the government aid that he or she needs. Thankfully, there's a way to avoid having to choose between benefits or a beneficiary.

The way to meet in the middle on this issue is with a special needs trust. These unique trusts are created for people in this precarious situation. You must be very specific when drafting your special needs trust to show that you want your estate to supplement the government benefits and provide only for luxuries and purchases that go above and beyond the benefits that that person receives at the local, state, or federal levels.

It is super important that your special needs trust does not duplicate any of the government provided services. This could disqualify your heir from his or her aid. Also, the government may try to seize your heir's new money for a repayment of services that were already provided by the government. You don't want these things to happen, so you will need to give a trustee complete control over the distribution of the assets and make sure that he or she fights to maintain the money for its primary use. If the assets are invested and generate income, the trustee must be responsible for this money as well. The beneficiary is restricted from demanding any of the principal or interest out of the trust.

If you are preparing a will, you will want to give a lot of thought to your choice for a trustee. This person will be responsible for caring for your disabled loved one after you pass away. This can be a serious undertaking, and you will want to appoint someone who is financially reliable and has a heart of compassion for the disabled. If you can, choose a family member that you know loves your child/heir as much as you do. That way you will not worry that a third party individual who only wants the money is manipulating you into letting them be trustee.

Beware of anyone who seems to have a conflict of interests, especially if you allow the trustee to inherit the trust once your heir has passed away. Make sure that the person you choose is more concerned about providing for your beneficiary than preserving the trust assets. If you want to, you could use a corporate trustee. That is a bank or a trust company that specializes in managing all sorts of trusts for people. These companies are normally unbiased and work hard to make sure that they are professional and careful when managing someone else's money. Work closely with an attorney when setting up this special needs fund, and evaluate his or her advice. It may be just the thing you need to set up a trust that will care for your disabled loved one long after you have passed on.