Special Needs Trusts: Help for Disabled Family Members
From Citi Personal Wealth Management
Families who have children or grandchildren with mental or physical disabilities face particular challenges if they want their children to be eligible for government financial assistance once they turn age 18. Working with an attorney to set up a special needs trust may help to solve that problem.
Key Financial Challenge. When adults apply for Social Security retirement benefits in their 60s, their income and assets are not counted when determining eligibility. But it's different with Social Security's Supplemental Security Income (SSI) program for the disabled. Because of means testing, a disabled SSI recipient must have little or no income or assets. Even giving money to a disabled person could make him or her ineligible for government financial assistance.
A Potential Strategy. A special needs trust, sometimes called a supplemental needs trust, can hold an unlimited amount of assets for a disabled person that aren't counted when qualifying for government benefits such as Social Security, Medicaid, vocational rehabilitation, subsidized housing or other benefits based on need.
Beneficiary/Life Insurance Considerations. Consider listing the special needs trust – not the disabled person – as the beneficiary for life insurance policies, annuities, Individual Retirement Accounts and other retirement plans. With life insurance, consider having more coverage than just replacing the breadwinner's income, to help make sure a disabled child can be cared for.
How to Implement. Consult your Legal/Tax advisor – the rules about trusts and their fees can be complex. An independent trustee should administer the trust, and any payments should be made directly to service providers and not to the disabled person or that person's family. The trust should have spendthrift provisions to protect its income and assets from claims of the disabled person's creditors. A special needs trust is generally irrevocable, although a carefully drafted trust document can include provisions for dissolution or termination under certain circumstances. A special needs trust can be created at any age.
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