A special needs trust can be an important part of your estate plan if you have a beneficiary who receives government benefits. They may only qualify for these benefits as long as they can pass a means test showing that they do not have substantial financial assets of their own, and they may be unable to work. The benefits help to cover the cost of necessities and support their life.
For this reason, leaving them a direct inheritance can sometimes cause unintended financial harm. If you leave them a significant amount of money, they will no longer pass the means test. Their benefits could be taken away, and they may be disqualified from that program.
Why is using a trust different?
One way to get around this is to put their inheritance into a special needs trust instead of giving them the money directly.
This is different because the trust then owns those assets. It does not count against the means test. They will still qualify for the benefits that they need, rather than being disenrolled and forced to spend down their assets before they can apply again.
But you can still leave them financial assets in the trust that can help in other areas. They may have certain needs that are not covered by government benefits, and you can authorize a trustee to make distributions to cover these costs. You are still giving your intended beneficiary the financial support that you want, but without putting their critical benefits in jeopardy.
Setting up your estate plan
A special needs trust is just one part of an estate plan to consider. If you are creating a complex plan, it can help to work with an experienced attorney while you set it up.