What Are Special Needs Trusts?

Tax Professionals' Resource
July 24, 2012 — 1,404 views  
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Supporting a disabled adult or a person with special needs can be difficult. However, special needs trusts offer several opportunities that can make life more comfortable.

With this type of trust, a disabled person can maintain his or her eligibility for public programs. Meanwhile, it could help the aforementioned parties receive financial assistance.

You'll want to be able to provide clients with plenty of information regarding special needs trusts, as they could prove helpful in a variety of scenarios. Review how these plans work so you can effectively evaluate whether they could serve as a useful option for your clients.

Who is involved in a special needs trust?

This kind of trust features a basic structure that remains consistent, regardless of your clients' specific circumstances. When a donor provides legal ownership of a property to a trustee, there are designated instructions he or she must follow. This party can create a trust to transfer the property to a beneficiary, which could benefit a disabled adult or a person with special needs.

A trust instrument refers to the legal document that establishes the trust. The trustee manages this plan, while the trust property is based on the money, real estate or other assets that provide the trust with its value. The primary beneficiary would be considered the handicapped person. Meanwhile, residual beneficiaries may receive the trust assets at the agreement's conclusion.

How are the trust funds used?

Special needs trusts offer financial support in areas Medicaid and Social Security's Supplemental Security Income (SSI) fail to identify. The funds are designed to help a person live comfortably, and do not necessarily have to be used for essential items.

This financial assistance could complement funds provided by public programs. For instance, the trust endowment can be used for medical care not supported by Medicaid.

How do you choose a trustee?

The trustee for a special needs trust can come from a variety of backgrounds, but this party should be a person who has the disabled or handicapped adult's best interests in mind. Commonly named trustees might include family members, friends, financial institutions or a pooled account trust administrator.

Understanding how a special needs trust works may help you direct your clients. While this might prove to be a worthwhile consideration in many situations, this sort of trust must fit the needs of your clients for it to deliver its benefits. 

Tax Professionals' Resource