For many people, thinking of a trust conjures images of well-to-do, spoiled adults in their twenties living off of their parents’ money. While trusts are absolutely useful for the most affluent members of society, they are also an important form of protection for the most vulnerable.
Special needs trusts have become increasingly popular in recent years. Parents, grandparents and other guardians may decide to start and fund a trust to help support a loved one with a debilitating medical condition. When you understand the basics of special needs trusts, you can better determine if your family might benefit from creating one.
What is a special needs trust?
A trust is a legal entity created for the purpose of performing certain functions and safeguarding assets. It is often the creation of someone’s family members, although an individual with a serious medical condition can potentially create their own. The trust has a trustee who oversees the assets within the trust and distributes them to the beneficiaries as appropriate.
How do you create a special needs trust?
There are two main tasks involved in the creation of a special needs trust. The first is the process of establishing rules for the use of trust assets. You may require that the trustee pay companies directly rather than giving money to someone with special needs. You might want to limit the use of those resources for health care, living expenses or educational costs.
The second task in establishing a special needs trust is the process of funding the trust. A trust is only as valuable as the assets transferred to it. You may use a bank account to fund a trust, or you may set up funding to occur at the time of your death. People can use their life insurance proceeds to fund a trust and can transfer their home to the special needs trust when they die so that their child can live in the same home indefinitely.
Is a special needs trust only for when you die?
Special needs trusts help provide a crucial safety net for children and adults with special needs when their primary caregivers die. However, those trusts can also help people with special needs live richer lives or achieve more independence while their caregivers are still alive.
You will have to decide which approach makes more sense given your family circumstances and the unique considerations for your loved one. Understanding the value of a special needs trust can help you decide if it is the right form of protection for your loved one with special needs.