When planning for the future of a loved one with a disability, it’s important to consider how best to provide for their ongoing care and support. One option that may be worth exploring is the creation of a trust specifically designed for the benefit of the disabled beneficiary. There are several types of trusts that can be used for this purpose, each with its own benefits and limitations. In this article, we’ll explore some of the key factors to consider when selecting the right type of trust for a disabled beneficiary.
Special Needs Trust
A Special Needs Trust, also known as a Supplemental Needs Trust, is a type of trust designed to provide for the needs of a beneficiary with a disability without interfering with their eligibility for government benefits such as Medicaid and SSI. In order to qualify for these benefits, the beneficiary’s income and assets must be below certain thresholds. A Special Needs Trust can help ensure that the beneficiary continues to qualify for these benefits by placing their assets into a trust that is not counted as part of their income or resources.
The trust can be funded with assets such as cash, stocks, and real estate, and can be used to pay for a variety of expenses related to the beneficiary’s care and well-being, such as medical bills, housing, transportation, and education. The trustee of the trust must be someone who is familiar with the beneficiary’s needs and can manage the trust assets responsibly.
One of the key benefits of a Special Needs Trust is that it can help ensure that the beneficiary’s assets are used for their benefit, rather than being depleted by the cost of their care. Additionally, it allows the beneficiary to maintain a certain level of independence and control over their life, as they can use the trust assets to supplement the government benefits they receive.
A Pooled Trust is another option for providing for a disabled beneficiary. In a Pooled Trust, the assets of multiple beneficiaries are combined into a single trust, managed by a non-profit organization. Each beneficiary has a separate sub-account within the trust, and the assets in their sub-account can be used to pay for their specific needs.
Like a Special Needs Trust, a Pooled Trust can help ensure that the beneficiary continues to qualify for government benefits while still receiving additional support. However, there are some key differences to consider. For example, a Pooled Trust may be a more cost-effective option for individuals with smaller trust assets, as the fees for managing the trust are shared among multiple beneficiaries. Additionally, the beneficiary does not need to name an individual trustee, as the non-profit organization managing the trust serves in that role.
On the other hand, the beneficiary may have less control over the management of their assets in a Pooled Trust than they would in a Special Needs Trust. Additionally, the non-profit organization managing the trust may have more limited investment options than an individual trustee.
A Third-Party Trust is a trust established by someone other than the beneficiary, such as a parent or grandparent. This type of trust can be used to provide for the ongoing care and support of a disabled beneficiary without affecting their eligibility for government benefits.
Unlike a Special Needs Trust or Pooled Trust, which are typically funded with the beneficiary’s own assets, a Third-Party Trust is funded with assets belonging to someone else. This can be an effective way for family members to provide for a disabled loved one without jeopardizing their own financial security.
The assets in a Third-Party Trust do not belong to the beneficiary, so there are fewer restrictions on how they can be used. The trustee has more flexibility in determining how to use the trust assets to provide for the beneficiary’s needs.
How Do I Choose The Right Trust for Me?
Choosing the right type of trust for a person with a disability can be a complex decision that depends on a variety of factors. Here are some key considerations to help you make the best choice:
Consider the size of the trust assets: If the person with a disability has significant assets, a Special Needs Trust may be the most appropriate option. On the other hand, if the trust assets are smaller, a Pooled Trust may be a more cost-effective option.
Evaluate the trustee’s ability to manage the trust: The trustee is responsible for managing the trust assets and making sure they are used in the best interests of the beneficiary. If you choose a Special Needs Trust or a Third-Party Trust, it’s important to select a trustee who is trustworthy, financially responsible, and knowledgeable about the needs of the beneficiary. With a Pooled Trust, the non-profit organization managing the trust serves as the trustee.
Consider the beneficiary’s needs: The type of trust you choose should reflect the unique needs of the person with a disability. For example, if the beneficiary requires extensive medical care, a Special Needs Trust may be the best option, as it can be used to pay for medical expenses. If the beneficiary has a smaller set of needs, a Pooled Trust may suffice.
Evaluate the tax implications of the trust: Depending on the size of the trust assets, taxes may be a consideration. Some trusts, such as a Third-Party Trust, may have tax advantages that make them more attractive.
Consider any additional factors: There may be other factors to consider when choosing a trust, such as the age of the beneficiary, the types of government benefits they receive, and the needs of other family members.
Choosing the right type of trust for a person with a disability requires careful consideration of all the available options and a thorough evaluation of the beneficiary’s needs. It may be helpful to consult with an experienced estate planning attorney who can provide guidance and help you make the best decision for your unique circumstances.
Schedule a Consultation with a Professional Estate Planning Attorney
At Galanti & Copenhaver, we understand the complexities surrounding the estate planning process. Our experienced team is dedicated to providing an individualized and client-centered experience. Schedule a consultation with one of our attorneys today!