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How to Set up a Special Needs Trust

How to Set up a Special Needs Trust

May 31, 2022

If you're looking for financial tips and information like what is a special needs trust and how to set it up, we have your guide below! A special needs trust, or a supplemental needs trust, is an estate planning tool for people with functional needs or a disability to receive financial support without affecting any government benefits they're receiving like Supplemental Security Income (SSI) or Medicaid negatively. Learn more about setting up a special needs fund, and don't hesitate to reach out to your local financial advisor for further assistance or if you have any questions.

What is a Special Needs Trust?

As mentioned above, this is an estate planning tool for those with a disability to receive financial support without negatively affecting any of their government benefits like SSI or Medicaid. Since beads-based government benefits require asset and income limits, getting assets or financial gifts can eliminate or reduce your eligibility. 

What does this mean? If your adult daughter has autism and is on SSI benefits and you want to give her money so she can cover her living expenses, she could be disqualified from getting needs-based government benefits. Also, if you pass away and leave her with your Roth IRA that's worth hundreds of thousands of dollars or any amount exceeding the assist limit, she could no longer get Medicaid or receive her SSI.

Benefits of a Special Needs Trust

By putting the assets into a special needs trust, she's able to keep her needs-based government benefits and get financial support from you for the rest of her life. There are lots of benefits of a special needs trust, which include:

  • Your loved one will still receive needs-based government benefits.
  • In some situations, lawsuit winners or creditors can't get access to the assets or funds in the trust.
  • A trustee or a financial advisor can invest in the trust fund.
  • You could get control over who inherits the trust when the beneficiary dies.
  • There's protection against financial abuse since the trustees have a fiduciary duty to act in the beneficiary's best interest.

How to Set up a Special Needs Trust

First, you should know that there are three types of special needs trusts:

  • Third-Party Special Needs Trusts are funded by someone other than the beneficiary, which can either be revocable or irrevocable. 
  • First-Party Special Needs Trust is different than a third-party in that it's funded with the beneficiary's assets. The beneficiary must have a disability, be under the age of 65 when established, and it must be irrevocable.
  • Pool Trust combines trusts for multiple beneficiaries, and they can either be first- or third-party trusts. They're normally managed and invested as one and have subaccounts for each beneficiary.

Setting Up a Special Needs Trust

To set up a special needs trust, you'll first want to consider your loved one's wishes. It's one of the most important steps because it determines how the funds will be distributed. 

Step 1: Consider Loved One's Wishes

As you're thinking about what your loved ones need, you'll want to consider the following:

  • How much money they need and how long it should last.
  • How frequently do you want them to receive money?
  • How much do you want them to receive?
  • What needs can be met with the money.
  • What will happen to any remaining money in the trust once they die.
  • Whether they will have control of assets.

Step 2: Choose Your Trustees

Your trustee is hired to help manage, invest, and disburse the funds for your loved one. You do have the option of choosing contingent trustees, which means you'll have a backup in the event something happens to one. Once they've chosen, you'll sign the trust to transfer assets to the trustee.

Step 3: Create the Trust Account

You can either set up the trust account on your own, but the wording that's used in the documents is essential. Working any wrong can create issues and even disqualify the beneficiaries from getting their benefits. Many financial advisors recommended hiring a lawyer who specializes in special needs trust. Once everything is drafted, all parties will sign it and have it notarized. You'll also need to register it with the IRS for tax purposes.

Step 4: Fund the Trust Account

Once everything has been signed, you'll then fund the special needs trust. You can fund it using assets like cash, life insurance policies that pay out when the policy owner dies, or investments. There isn't a minimum amount usually required to fund it.

Step 5: Invest Your Funds

It's suggested that you moderate investments so your loved one can access the funds when needed. Some trust fund account providers do have rules on the investments you're able to fund your trust with, so be sure to check before choosing a provider.

Get More Financial Tips Today!

IntentGen is proud to be your go-to source for all of your financial needs. Be sure to visit our website for additional information about special needs trusts, your insurance options, investment tips, and much more. Contact your local financial advisor to learn more about setting up a special needs trust.