The National Organization on Disability reports that almost 54 million people in America have special needs. Setting up a special needs trust is one way for families to provide for these disabled loved ones into the future.
Based on the family’s situation, there are five kinds of trusts to choose from.
1. Third-party
A third-party special needs trust allows relatives and friends to establish a trust using their assets, ensuring financial support for the individual without affecting eligibility for government assistance programs. This thoughtful approach enables families to extend their support and uphold the individual’s quality of life.
2. Pooled
Pooled trusts offer a collective approach to managing assets for individuals with special needs. Many beneficiaries pool their resources, allowing for more effective investment management. Administered by nonprofit organizations, these trusts cater to those who may not have large individual funds but can benefit from a shared financial strategy.
3. Testamentary
Parents can establish a testamentary special needs trust within their wills, to go into effect upon their death. This type of trust ensures that the legacy of care and support continues after the parents pass, providing a secure financial future for the loved one with special needs.
4. Living
Financial guardians can also establish living special needs trusts while they are still alive. This proactive approach allows for real-time management of assets, ensuring ongoing financial support and a high standard of living.
5. Self-settled
Individuals with special needs may have a sudden windfall, such as an inheritance or a legal settlement. A self-settled special needs trust allows them to preserve these assets while still qualifying for benefits such as Medicaid and Supplemental Security Income. In this way, individuals can maintain financial stability by safeguarding their newfound resources without sacrificing essential support.
When setting up a trust, it is important to remember that benefactors can name the special needs trust as a beneficiary in a retirement plan or IRA, not just in a will.