A special needs trust, in some ways, operates like any other type of trust. A person can create it when they are making their estate plan, and they can then use their assets to fund it. They can choose a beneficiary who will be able to obtain withdrawals from this fund, although the trustee has to authorize them to make sure that the terms of the trust are being upheld.
That said, a special needs trust is created for a specific purpose, and that often helps an individual retain their eligibility for benefits. Why would this be accomplished by putting assets into the trust rather than leaving that individual an inheritance directly?
They need to pass a means test
Often, the issue is that the benefits are only granted to the individual if they can pass a means test. Their eligibility is contingent on their not having assets of their own and having a low level of income.
In this sense, leaving them an inheritance can disqualify them from the benefits that they need. The government may require them to spend down the assets they have inherited before they can reapply for benefits, creating a problematic disruption in services and also meaning that they have to spend the entire inheritance on things that otherwise would’ve been covered.
But by putting the assets into a special needs trust, the beneficiary does not own them directly. This means that they will still qualify for the benefits they need, which could be related to housing costs or medical care. The trustee can then use the funds from that trust to provide other types of assistance in areas that are not covered by benefits.
Creating a plan
As you can see, it’s very important to carefully consider how an estate plan works and the ramifications that it will have for the beneficiary. If you are creating such a plan, be sure you know exactly what steps to take.
