Special needs trusts can be an important financial asset
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Special needs trusts can be an important financial asset

On Behalf of | May 17, 2021 | Trust |

Families of special needs persons confront every conceivable emotion in providing a productive and happy life for their kin. Though uncomfortable to consider at times, financial matters contribute significantly to that end. Prudent short and long-term planning in that realm may lead parents and other family members to consider a special needs trust.

Special needs trusts serve a dual purpose: They ensure the beneficiary receives both long-term financial protection and maintains eligibility for means-tested benefits, which are available only to those with limited income or assets income, such as Supplemental Security Income, in the near term. A third-party trustee may have authority to make disbursements from the assets in the trust on the beneficiary’s behalf.

Types of special needs trusts

A Third-Party Special Needs Trust is funded by family members of the beneficiary. The most common type, it sets aside specific assets for the beneficiary’s common expenses. The failure to exclude distributions made for food, shelter or medical expenses could reduce government benefits.

A First-Party Trust is established with the assets of the special needs person. A special needs person who directly receives unexpected income, through an inheritance or life insurance payout may prefer this type. Pooled trusts, on the other hand, are those managed by a nonprofit association that holds and manages trust assets.

State and federal law affect impact beneficiary of a Special Needs Trust

Trust law falls primarily within the purview of state law; federal law often interlocks with it. Trust-like accounts, called 529 ABLE accounts, permit individuals to allocate $15,000 annually for the benefit of a person with special needs. A beneficiary may lose SSI benefits, however, if the ABLE account exceeds $100,000 in assets.

South Carolina has used federal law regarding SNT as the basis for an exception to a general principle regarding clauses in a trust. Furthermore, a major difference between first-party and third-party trusts lies in that the former requires repayment to any State Medicaid program that provided medical assistance benefits; the latter does not.

Complex laws regarding SNT at the state and federal level can require a steady hand and knowledge to ensure the appropriate steps are taken. An attorney with estate planning experience can be a great resource in planning for a family member with special needs.