When is a Special Needs Trust a Good Idea?

More than 50 percent of Americans will be diagnosed with a mental illness, disability or disorder during their lifetime according to the Centers for Disease Control and Prevention. The odds are good that some of these people will inherit wealth someday.

Arkansas Democrat Gazette’s recent article, “Creating a special needs trust ensures that mentally ill heirs benefit from inheritance,” explains that a trust enables you to leave specific directions for trustees about how to care for your loved one and distribute assets. A trust can also be especially helpful for transferring assets to family members who have a disability but can still function independently.

While these loved ones are often independent, they could still have difficulty managing money. For example, for a person with depression, you can put assets in a trust.

While a basic trust may be enough for a family member with a mental illness or disability who mostly functions independently, it could impact an individual who cannot function independently and receives government assistance. An experienced estate planning attorney or elder law attorney will ensure that you don't accidentally leave them something that disqualifies them from a government program benefit, like Medicaid.

People who receive government assistance could have limits on how much they can have in assets. For instance, to be eligible for Supplemental Security Income through Social Security, a person typically cannot have resources of more than $2,000 as an individual or $3,000 as a couple. However, you can avoid eligibility issues by placing those assets into a special needs trust, an estate planning tool for individuals with disabilities or functional needs.

A special needs trust is designed to supplement government benefits that the individual is getting.

A standard special needs trust created pursuant to a Last Will and Testament is not effective until the person who establishes the trust passes away. Alternatively, if you plan to support your disabled family member financially while you're alive while they receive benefits, ask an elder law attorney about creating a stand-alone special needs trust.

You want your plan straightforward and streamlined to protect your loved one from financial abuse and prevent mishandled funds. First, ensure that all your accounts and assets are addressed to the trust and not in the individual's name. You should also provide clear directions about how money is spent. Finally, all assets should flow through the trust, if possible.

At Curran Estate & Elder Law in Reading, Pennsylvania, we are experienced with dealing with trusts and working with families who want to leave assets to disabled beneficiaries.

Reference: Arkansas Democrat Gazette (May 8, 2023) “Creating special needs trust ensures that mentally ill heirs benefit from inheritance”