Special Needs Trusts

If you have loved ones you’d like to provide for after your death, but you’re worried about their other benefits, special needs trusts may be an option. There may be one or more people that you wish to provide financial benefits for after you pass away. If any of those people receive government benefits or other resources that are dependent upon their finances, you may have concerns about leaving money or assets to them. However, special needs trusts can provide you with a way to provide for those you love while they continue to qualify for benefits.

Contact Herbert Law Office today to find out more about setting up and managing special needs trusts.

What Are Special Needs Trusts?

Special needs trusts are a type of trust that provides benefits to someone who has government benefits or other benefits that are dependent upon their finances. People establish trusts to manage money, real estate, or other property for another person’s benefit. A trustee typically controls the trust and ensures it is managed properly for the benefit of the person it is intended to help.

The beneficiaries of special needs trusts often receive government benefits or other benefits. They may be ineligible for those benefits if they directly inherit an amount of money or property. Thus, special needs trusts are set up to possess money and property instead of the beneficiary. The trust may distribute funds to the beneficiary in increments, or it may allow the beneficiary to use property. However, because the beneficiary does not own the money or property, they continue to qualify for special benefits.

Common terms used with trusts include the following:

Beneficiary – person, people, or organizations that are to receive funds or use property as a benefit from the trust.
Trustee – person who is responsible for managing the trust and ensuring it is carried out according to the originator’s wishes.
Grantor – person who originally owns the money or property to be conveyed through the trust.

Any type of property or assets may be managed in special needs trusts. A trust can hold money, stocks, investment accounts, real estate, patents, jewelry, a business, and more.

Types of Special Needs Trusts

There are two types of special needs trusts: third-party and first-party. These trusts serve similar purposes, but for different types of beneficiaries. They both hold financial assets or property for the benefit of someone. They also both require a trustee to manage them and ensure distributions are properly administered.

Special needs trusts are different according to who they benefit. A third-party special needs trust benefits someone other than the person who set it up. Family members often establish trusts for their loved ones, frequently through wills and other estate planning measures.

A first-party special needs trust benefits the person who owns the property. People often set up first-party special needs trusts for personal injury settlements and verdicts, retirement benefits, divorce settlements, life insurance policy proceeds, and inheritance amounts. If a person receives government benefits or other benefits that are dependent upon their finances, they can set up a special needs trust to avoid disqualification of those benefits.

Setting Up Special Needs Trusts

In order to create special needs trusts, you must create a document that provides instructions about setting up your trust. Through a trust document, a grantor or settlor names a trustee to manage the trust. The grantor or settlor is the person who owns the funds or property the trust will convey. Often, a grantor or settlor is the trustee until they die. Special needs trusts may name a succession of people as trustees.

Special needs trusts must also describe the funds or property that it will convey to the beneficiary. The document must describe where the money or property is and how the trust should distributed them to the beneficiary. The trustee must follow the directions in the trust document.

A trust becomes effective when you sign and notarize it. Then, special needs trusts get tax identification numbers from the Internal Revenue Service (IRS) so that they remain legally compliant. The beneficiary may not have to pay taxes on benefits of the trust if the trust itself pays applicable taxes. The trustee is responsible for making sure the trust remains tax compliant.