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Using a special needs trust to provide for a disabled relative

by | May 25, 2021 | Estate Planning

Individuals with disabilities are often unable to work or support themselves financially. Fortunately, the social safety net may provide meager funds for housing, groceries and basic medical care. To qualify for Supplemental Security Income, Medicaid or other similar benefits, though, a person must have limited financial resources.

If you have a relative with a disability, you may want to use some of your wealth to improve his or her quality of life. You must walk a fine line, however. After all, if you gift cash or other assets to your loved one, you may inadvertently render him or her ineligible for means-tested government benefits. A special needs trust may be the answer.

Transferring assets

When you establish a special needs trust, you place funds in trust for the benefit of your relative without actually transferring ownership to him or her. Consequently, funds in the special needs trust typically do not count as income for purposes of qualifying for needs-based government help. Provided your loved one does not use trust disbursements for the same expenses government programs cover, he or she may remain eligible for public benefits.

Managing duties

Because you have worked hard for your wealth, you do not want to worry about trust mismanagement. When you set up the special needs trust, you choose a responsible and competent trustee to manage it. Not only does this trustee approve trust disbursements, but he or she also manages investments. With savvy investing, funds in the trust may continue to grow over time.

Improving the quality of life for a relative with a disability may be one of the nobler ways to cement your legacy. Put simply, establishing a special needs trust may help your loved one receive the full benefit of both your generosity and the social safety net.