Special Needs Trusts: Financial Planning for Loved Ones with Mental or Physical Disabilities

When setting estate plans, it is important to consider the impact that the inheritance or trust funds can have on the beneficiary. The intent of planning to bequeath a loved one part of your estate is to help them out. However, for those with some physical or mental disabilities, the gift can actually impair their ability to obtain social security if the gift is made without the proper steps being taken first. The following includes basic reasons for creating a special needs trust.

Reasons to create a special needs trust:

  1. More security for your loved one.

With a properly created trust, the person may continue to receive benefits from the government but also get benefits from the funds you set aside for them. These funds cannot generally be used for housing or food – those are covered by government benefits. If the trust is used for those purposes, the funds may be seen as income. The trust should instead be used for purposes such as educational costs, counseling or other supplementary medical care, certain utilities, and transportation needs. This gives your loved one greater access to the resources they need in life without taking away access to their needed government resources.

  1. Avoid possible cutoff of government benefits.

A huge fear many individuals have is how their loved ones will be taken care of after the individual passes on. Estate planning attempts to curb those concerns by putting legal documents in place that direct to who your assets will pass to. Many people set in this in place with a simple will. Wills are helpful in many circumstances. However, as previously mentioned, an inheritance can cut off government support from someone who needs the support. The government sees the inheritance as income to the beneficiary and if that puts them over the cutoff for assistance, they miss out. For many people that find themselves above the cutoff line, the inheritance alone is simply not enough to provide for all their needs.

Trusts place the same money you would have gifted in the will into a trust for the benefit of your loved one. However, instead of the individual having direct access to the funds, with a special needs trust you would appoint a trustee to oversee the account. Because the individual is unable to directly access the funds, it is not seen as income, thereby preserving their government benefits.

  1. Prevention of misuse of funds.

One concern that you may have is that your loved one with a physical or mental disability may not use the funds you give them appropriately. Some disabilities may cause the person to be unable to make proper financial decisions during all or parts of their life. A trust is a great way to place the main responsibilities of some financial decisions on someone that may have a better ability to make appropriate financial decisions. This makes choosing a suitable trustee very important. By not giving your loved one a lump sum in a will, you can be more assured that the funds will be used for their continued benefit when you are no longer able to help them.

Are you interested in creating a special needs trust?

If you feel that a special needs trust would be helpful to you and your loved ones, speak to an estate planning attorney to go over all facts involved so that they can help by creating an estate plan that best suits your needs.

Legal Disclaimer:

The information on this page does not constitute legal advice and should not be relied upon as each situation is fact specific and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. The information on this page is solely for the purpose of legal education and is intended to only provide general information about the matters stated therein. The information on this page should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area of the matters stated therein. No attorney-client relationship is formed without an actual agreement confirmed in writing. We have attorneys licensed in Oregon, Washington, and Arizona.