The purpose of a Special Needs Trust is to distribute assets to your beneficiaries who receive Supplemental Security Income (SSI) and Medi-Cal without jeopardizing their access to these benefits. If you have a beneficiary who receives these benefits and you leave assets directly to him or her, then he or she will be ineligible for their benefits until they spend down these funds. Those with good intentions may inadvertently cause a problem for a loved one because they have not properly planned their estate. For example, a well-meaning relative may name an special needs individual as their primary beneficiary on their life insurance policy without realizing that this will result in the special needs beneficiary not receiving SSI or Medi-Cal until these assets are spent down.
Thus, it is important to prepare a third-party Special Needs Trust so that the assets can be distributed without jeopardizing these important benefits. Routinely, attorneys will prepare a Special Needs Trust for these beneficiaries. These monies can be used for any service or item which supplements and does not replace governmental benefits. For example, the trustee cannot give these funds directly to the special needs beneficiary, but use these funds to purchase goods and services, such as out-of-pocket medical and dental expenses, education, recreation, physical rehabilitation, and vacations. Thus, it is crucial for the trustee to use discretion when making payments. If this is not done correctly, then the special needs beneficiary may become ineligible for their benefits. Thus, it is important to seek the advice of an attorney who can set-up the special needs trust and give advice regarding proper administration.
The other type of Special Needs Trust is a first party trust. This occurs when the beneficiary funds this trust with his or her own money. For example, the individual sustained a severe injury on the job or was an automobile accident and he or she received a settlement. These assets can be managed by setting it up in a trust which will ensure that the beneficiary can use the assets without jeopardizing his or her benefits.
The creation of a Special Needs Trust is crucial if you want to leave monies to those with special needs without jeopardizing their benefits. With a little planning, a well-drafted document can be prepared which will ensure that your loved one receives supplemental assistance from your estate plus their governmental benefits.
Source: Affinity Trusts. Not affiliated with KeyPoint Credit Union.