If you have a family member living with a disability, a special needs trust is a critical estate planning tool. This type of trust is designed to ensure that a person living with a disability can receive financial support from family, friends, and loved ones without jeopardizing their eligibility for government benefits, such as Medicaid or Supplemental Security Income (SSI). A special needs trust can provide financial security, preserve eligibility for vital benefits, and offer peace of mind to families.

Many forms of government benefits are means-tested, meaning that they are contingent on the recipient's financial status. For individuals with disabilities, these benefits are often needed to cover medical expenses, housing, and other essential needs. However, if an individual with disabilities receives a direct inheritance or a lump sum of money, it could disqualify them from receiving these benefits. A special needs trust prevents disqualification by holding assets in a way that does not count against the beneficiary’s income or resource limits. The trust can provide for the beneficiary’s additional needs without interfering with their eligibility for government programs.

A special needs trust also handles the investment management of the assets within the trust. Individuals with disabilities might not be able to manage their finances effectively due to their condition. A special needs trust appoints an individual or institution responsible for managing the trust’s assets to ensure they are used in the best interest of the beneficiary. This ensures that funds are allocated appropriately, preserving the beneficiary's quality of life and financial stability.

The trust can be designed to provide for a wide range of needs, including education, entertainment, medical treatments, and even supplementary personal care services. This flexibility is important because it ensures that the beneficiary’s unique needs and preferences are met, enhancing their overall well-being. Unlike government benefits, which can have strict usage guidelines, a special needs trust allows for a tailored approach to meeting the beneficiary’s needs.

A special needs trust also offers peace of mind to families. Parents or guardians can rest assured knowing that their loved one will be cared for financially after they are gone. The trust ensures that the beneficiary will have access to resources that might otherwise be unavailable, and it can provide for their long-term care in a way that aligns with the family's wishes. This peace of mind helps alleviate concerns about the future and the well-being of the individual with disabilities.

There are different types of special needs trusts, such as third-party trusts (funded by someone other than the beneficiary) and first-party trusts (funded with the beneficiary’s own assets). Each type offers different benefits and can be chosen based on individual circumstances and objectives.

By incorporating a special needs trust into estate planning, families can better safeguard the future of their loved ones and ensure their continued care and support.

This article was drafted with the aid of AI. Additional content, edits for accuracy, and industry expertise by Erin Sunday, regional wealth manager for F&M Trust.