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What do you need to know about special needs trusts?

On Behalf of | Jun 18, 2024 | Estate Planning |

Anyone who’s creating an estate plan generally needs to consider how to hand down their assets in a way that benefits their loved ones. For some, an estate plan includes a will, as well as trusts. A trust is a legal entity that holds assets and then passes them down as stipulated in the terms of that legal resource.

For those who have a loved one who requires needs-based services, a special needs trust may be beneficial.

What are the types of special needs trusts?

People who are creating an estate plan can establish either a third-party special needs trust or a pooled special needs trust. While these have similar purposes, the way they’re funded and function varies.

Third-party special needs trusts are funded by a loved one of the person with special needs. They are commonly established by parents or grandparents who wish to provide for a loved one with special needs without affecting their eligibility for public benefits.

Pooled special needs trusts pool the resources of multiple beneficiaries for investment purposes while maintaining separate accounts for each beneficiary. These trusts can be an attractive option for individuals with smaller amounts of money to invest. Pooled trusts also offer professional management and oversight by a non-profit organization, which is beneficial for those who aren’t sure how to manage the trust.

How can special needs trusts help beneficiaries?

Special needs trusts provide several benefits. Primarily, they ensure that funds are available to enhance the quality of life for the beneficiary without disqualifying them from essential government programs. The funds in the trust can be used for various expenses, including medical and dental care, education, personal care attendants, rehabilitation and recreational activities, which are not typically covered by public benefits.

Establishing and managing a special needs trust requires careful planning and consideration. These trusts require specific wording and conditions in order to protect a beneficiary. Working with a legal representative who’s familiar with these trusts is beneficial because it removes the guesswork from the situation.