If you have a disabled person in your care, or even in your family, you undoubtedly spend a lot of time worrying about their well-being. People with special needs are in a unique financial situation in several ways. Many of them are not capable of doing their own financial planning and cannot be trusted to manage large amounts of money.
Worse, though, is that what would be a windfall for most people – such as an unexpected inheritance or life-insurance payout – can actually be a disaster for them. Because they cannot own more than $2000 in assets (exempting a house and a car) without losing their Social Security and Medicare\Medicaid benefits, a large payout can actually take away their ability to survive in the long term. These are the situations that special needs trusts address.
There are several types of special needs trusts, but in general, they are trusts set up by a third party, usually either a relative or the court system, to hold their assets in trust so that they are not counted towards the SSI asset limit. They can also provide for supplemental expenses, such as medical care not covered by government benefits. They can fill the “donut hole” in Medicare coverage, or provide legal support if the person is involved in court actions.
There are also special limitations on them. The disabled person is not allowed direct access to them or any power to order their disbursement. The assets can come from their own assets, but mostly come from outside contributions and inheritances. Because of SSI rules regarding asset counting, they generally cannot be used to provide for basics of living such as food and shelter. These are instead supposed to be paid using government support. However, these trusts can be used to pay for special events such as parties and vacations, or to modify their home to fit their needs.
These special needs trusts are also superior to the usual alternative of having a relative pay for their costs directly. For example, the trust is legally obligated to provide for their support; a relative is not. Also, the assets are shielded from legal action. If you were to leave money to your brother to support your disabled child, but your brother was involved in a costly divorce, your child's care goes away with the settlement.
Ensuring the proper care and quality of life for a disabled person can be a daunting task, and it's not made any easier by the constant fear of having their SSI benefits taken away. In short, special needs trusts can be an extremely safe and reliable method of ensuring they have everything they need for years to come.
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