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Special needs trusts protect assets and government benefits

On Behalf of | Apr 23, 2024 | Estate Planning |

If you have children with disabilities or worsening conditions, you may worry about their future. You may have assets to leave behind for their care but harbor concerns that it will interfere with their ability to obtain needed government aid, such as Medicaid benefits, in the future.

Medicaid requires recipients to have limited assets and income, and inheritance may push your children over the limit. A special needs trust can help avoid this situation.

What is a special needs trust?

A special needs trust is a vessel for you to pass down property and funds. Its primary advantage is that its contents are exempt from the valuation of assets and income performed during the assessment of eligibility for government benefits. The government does not count those assets. A trustee you appoint handles the funds and doles them out. You can appoint a family member, a friend or even a hired corporate trustee.

What can special needs trust assets be used for?

Generally, they cover what government benefits do not. This may include unpaid medical bills, food, transportation and other common living expenses. You specify what the trust funds may go to when you set up the trust.

What assets can you fund special needs trusts with?

You can transfer funds directly to special needs trusts, but you can also put in investments. You can also put life insurance policies in them; it is important to avoid designating your disabled children as beneficiaries since this can interfere with government benefits.

According to the Centers for Disease Control and Prevention, around 25% of adult Americans have a disability of some form. While government programs like Medicaid exist to help disabled individuals, they have a strict wealth cutoff line. Special needs trusts are a way for you to give your children the assets needed to ensure their future without endangering their government help.