When mapping out an estate plan for a loved one with disabilities, one of the most powerful tools at your disposal is a supplemental needs trust. This legal instrument allows for the preservation of assets for the disabled individual without jeopardizing their access to essential government benefits.
Decoding a Supplemental Needs Trust
A supplemental needs trust, often called a special needs trust, is a unique estate planning tool. It holds and manages assets for a person with disabilities, ensuring their ability to benefit from these resources without losing their eligibility for government aid programs such as Medicaid and Supplemental Security Income (SSI).
Benefits of a Supplemental Needs Trust
Government aid programs are fundamental to the well-being of individuals with disabilities, but they come with stringent income and asset thresholds. By placing assets within a supplemental needs trust, you can provide additional financial support without risking disqualification from these essential programs.
Funds from the supplemental needs trust can be used for a variety of expenses, such as education, therapy, personal care attendants, and out-of-pocket medical and dental expenses.
Choosing Your Trustee Wisely
Setting up a supplemental needs trust is only part of the equation; you must also select a competent trustee. Consider the following tips:
1.) Understand the Role: The trustee will be responsible for managing the assets and making distributions on the beneficiary’s behalf. They should understand the trust’s terms, the laws governing public benefits, and the beneficiary’s requirements.
2.) Consider Age and Health: Ideally, the trustee should outlive the beneficiary. If you’re considering a family member or friend, their age and health should factor into your decision.
3.) Prioritize Trustworthiness: The trustee will have substantial control over the assets, so it’s crucial to choose someone reliable and trustworthy.
4.) Look for Financial Savvy: Managing trust assets requires financial acumen. The trustee should be comfortable dealing with investments, taxes, and accounting.
Types of Supplemental Needs Trusts
Supplemental needs trusts come in two forms: first-party and third-party trusts. A first-party trust is funded with assets belonging to the beneficiary, often derived from inheritances, lawsuit settlements, or personal savings. Conversely, a third-party trust is funded by anyone other than the beneficiary, typically parents or other relatives.
These distinctions should be fully understood because of the financial implications. Medicaid will attempt to obtain reimbursement from the estates of beneficiaries after they are deceased. This is called the Medicaid estate recovery process.
Assets that remain in a first-party special needs trust after the beneficiary’s death can be attached by Medicaid, but resources that remain in a third-party supplemental needs trust are protected. Those assets would go to a successor beneficiary that is named in the trust declaration.
Engage Professional Help
Supplemental needs trusts and public assistance programs are complex, so seek expert advice. A licensed attorney can guide you in setting up the trust to meet all legal requirements and effectively serve the beneficiary.
Keeping the Trust Current
Regularly review and update your trust to reflect changes in circumstances and legislation. This will ensure the trust remains effective and the beneficiary continues to receive the required support without losing access to public benefits.
Put a Plan in Place!
We are here to help if you would like to work with a Warren, NJ estate planning lawyer to establish a tailor-made estate plan that provides for everyone in your family in the optimal manner. You can send us a message to request a consultation appointment, and we can be reached by phone at 908-222-8803.
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