If your child has special needs, you can set up a special needs trust to provide ongoing care. While you may want to leave the child some inheritance, establishing a trust will preserve the child’s eligibility for government benefits. Because of the tax implications, it’s important to work with a tax advisor to help minimize the amount of taxes you pay. This article explores the pros and cons of establishing a special needs trust.
A special needs trust is used to provide funding for expenses that don’t fit under government assistance programs, such as therapy, computer equipment, and trips. It also may pay for medical and dental expenses, as well as training, transportation, and home modifications. This money is not meant to cover basic needs, but instead can be used for recreational activities, counseling, and camp. However, it is important to make sure the money is spent according to IRS guidelines, so it’s crucial to keep track of all expenses during a year.
A special needs trust must be set up for a child who is younger than 65 years old and has a disability. This trust is primarily intended for disabled individuals who can’t work or who may not earn enough money to qualify for government benefits. A special needs trust can help you make the best choices for your child. If your child is disabled, setting up a special needs trust is a smart decision.
Setting up a Special Needs Trust can be expensive and complex. When it makes sense to set up a trust is based on the type of trust you set up and the type of beneficiary you have. If you plan to use the funds for a special purpose, it’s a good idea to consider setting up a pooled Special Needs Trust, which pools multiple trusts for the benefit of multiple beneficiaries. The nonprofit organization acts as a trustee of all the trusts and manages the funds, makes investment decisions, and fulfills tax obligations.
Setting up a Special Needs Trust can be a smart move for a disabled individual who may need government benefits in the future. While the disabled person would continue to receive SSI and Medi-Cal benefits, the trust’s assets can provide for additional care expenses and prevent disrupting government benefits. In addition to the added resources, a Special Needs Trust can be used to avoid taxes and ensure that the disabled beneficiary receives the best medical care.
Choosing a trustee is an important aspect of setting up a Special Needs Trust. The person who will manage the trust must have expertise in managing the trust. This person should be familiar with dealing with investments, bills, accounts, and tax returns. Choosing a professional trustee may not be appropriate for some families, because they may not know the beneficiary’s unique needs. Therefore, it may be best to appoint a family member to act as the beneficiary’s co-trustee.
One of the pros of setting up a Special Needs Trust is that the money in it is irrevocable. That means that it cannot be revoked or seized by creditors. Also, the money in the SNT cannot be used for personal needs. In addition, SNT funds cannot be used for household expenses, such as repairs and monthly bills. You’ll also want to make sure that the Trust purchases the household goods needed for the beneficiary’s care.
Third-party special needs trusts are most common, but you must carefully read the details of each type of special needs trust before making your decision. While most trusts are set up to provide health care for a disabled child, some may not meet the child’s specific needs. For example, if the child has medical needs, a third-party trust will not duplicate government services. Nonetheless, if the child is disabled and has a substantial amount of assets, a third-party special needs trust may be the best option.
A special needs trust is an ideal planning tool for families with disabled children. It will hold assets for the disabled individual without interfering with the beneficiary’s eligibility for public benefits. A SNT can pay for expensive care, therapies, and other services not covered by government benefits. This tool can also help parents plan for the future of a disabled family member. The trust can be set up as a standalone trust or pooled with other assets.