Many parents or guardians of loved ones with special needs struggle to navigate the landscape of special needs trusts and inheritance. You may feel like you have enough time to decide later, especially if your loved one is still a child. However, it's essential to prepare for the unexpected and secure your family's future with estate planning.
What Is a Special Needs Trust?
Special needs trusts, also known as supplemental needs trusts, allow you to create a legal structure that controls financial assets for the benefit of a loved one with special needs. Many special needs trusts exist, but typically you will appoint a trustee who has control over the assets and administers them as needed.
Creating a special needs trust allows the beneficiary to qualify for public benefits such as Medicaid and Supplemental Security Income (SSI). These benefits have a low-income requirement, meaning that leaving an inheritance to your loved one can disqualify them from financial aid.
When Do I Need a Special Needs Trust?
You should consider the following factors when deciding whether a special needs trust is right for you and your loved one:
- The number of financial assets
- The individual's ability to manage assets
- Their vulnerability to financial exploitation
- Eligibility for public benefits
Types of Special Needs Trusts in Tennessee
Special needs trusts can be complicated and come in various forms, but three common variations exist.
First-Party Special Needs Trust
A first-party special needs trust controls assets that belong to the beneficiary. These assets could be inheritance or a settlement payout. Since the money belongs to the beneficiary, the trust's contents will revert to the government after the beneficiary's death.
Third-Party Special Needs Trust
The person who creates a third-party special needs trust is usually the beneficiary's parent, grandparent, or another family member. The appointed trustee has full discretion over how to use the funds on behalf of the beneficiary.
The money does not belong to the beneficiary, so the assets from the trust will not need to go toward government benefits upon their death and can pass on to another individual or organization.
Pooled Special Needs Trust
Pooled trusts are a unique case where a nonprofit controls the trust and designates an appointee from their organization. This type of trust is useful for pooling funds from multiple sources to grow investments.
Features of a Pooled Special Needs Trust include:
- Managed by a nonprofit organization
- Nonprofit assigns the trustee
- Can be first-party or third-party
- Can support multiple beneficiaries
- Funds come from multiple individuals
A Trusted Attorney Can Help You With Special Needs Planning
If you want to ensure your loved one is protected upon your death, a special needs trust provides a safe solution for responsibly controlled finances and maintaining eligibility for government benefits.
The Law Offices of Charles R. Frazier can assist you with your estate planning needs. Click on the button below to schedule a confidential appointment.