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3 things to know about a special needs trust

People who have complex or life-altering medical issues sometimes rely on government assistance for care. This can include Supplemental Security Income, Medicaid, and other programs. The issue with this is that if the person comes into a substantial windfall, the increased income could kick them off of the programs that they rely on for medical care and to make ends meet. One option, which is legal, is for a special needs trust to be put into place.

Government assistance isn't a requirement

A special needs trust is an option for anyone who has special needs. Even though these trusts are very helpful when a person is receiving government assistance, receiving that assistance isn't a requirement to start a special needs trust. There are many different assets that can be placed in a special needs trust. Essentially, any assets that could increase the net worth of the beneficiary can be placed in the trust. This includes inheritances, settlements, and other assets that are given to the beneficiary.

A trustee controls the windfall

The reason why a special needs trust doesn't count as assets for the person with special needs is because the beneficiary doesn't have control over the trust. Instead, the assets in the trust are controlled by a trustee. Since the trustee determines how the assets are handled, those assets aren't counted when factoring in income and assets for the purpose of income-based and asset-based programs.

When the beneficiary needs something, the trustee, who can be a trusted family member or anyone else who is appointed, purchases the items needed. The trustee can't hand the beneficiary money because that would count as income. With this in mind, anyone who is considering including a person who has special needs in an estate plan should be sure that they find out how to set up a special needs trust to help protect their loved one while still providing for their needs.

Special needs trusts are protected

Special needs trusts have another benefit. These trusts are protected from settlements. This means that creditors or anyone else who would sue the beneficiary wouldn't be able to access the assets that are held in the trust. It is important that wording in the documents notes how the trust is meant to provide supplemental and extra care on top of what the government provides. It should be clearly stated that the trust assets aren't meant for primary. Other wording might be necessary, so be sure to find out exactly what must be included if you are starting a special needs trust.

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