Funding a Special Needs Trust
If you have a child or other loved with special needs, ensuring that they live a life of comfort and care after you are gone is probably one of your biggest concerns. That’s where a special needs trust can be useful.
Setting up and funding a special needs trust can be challenging. An estate planning attorney, who has experience with special needs trusts, can help you set up a trust for your loved one and connect you to financial planners who can advise you on how much to put aside to meet your loved one’s needs.
Call our law firm today to discuss your situation with an experienced Virginia estate planning attorney.
What is a Special Needs Trust?
To be eligible for needs-based public benefits, including Medicaid, an individual with special needs must have a very limited amount of income and assets. However, public benefits alone are rarely enough for an individual to live on comfortably.
A special needs trust is a type of trust that allows you to set aside money and assets to help a special needs individual pay for certain things that government benefits will not cover, such as:
- Certain medical costs;
- Caregivers;
- Travel costs;
- Education;
- Entertainment;
- Recreation; and
- Many other things that can enhance the individual’s quality of life.
Most importantly, with a special needs trust, this can all be done without jeopardizing the individual’s eligibility for much-needed government benefits.
Types of Special Needs Trusts
Usually, the parents of a special needs individual will open what is called a third-party special needs trust, with the disabled individual as the beneficiary. With a third-party special needs trust, the entire family can contribute funds and assets to the trust.
In fact, it is important that family and friends, who want to make major gifts or leave inheritances to the special needs individual, give them to the trust, and not directly to the special needs individual. It is also important to note that if the special needs individual owns any major assets, including any kind of personal injury settlement, a first-party special needs trust will need to be created to hold those assets.
The main difference between a first-party and third-party special needs trust is that any funds remaining in a third-party special needs trust, after the beneficiary passes away, will be distributed to the designated remainder beneficiaries or to the decedent’s estate.
On the other hand, funds remaining in a first-party special needs trust, after the beneficiary dies, will first go to reimburse the government for any public benefits paid out to the beneficiary during his or her lifetime.
In What Ways Can a Special Needs Trust Be Funded?
A special needs trust has no value until it has been funded with money and assets that will benefit your loved one with special needs. But, funding a special needs trust requires assistance and guidance from an experienced professional who can help you avoid errors or financial missteps.
That said, there are a number of strategies that an experienced estate planning attorney can help you implement to fund a special needs trust for your loved one. Consider the following:
- A Will – a pour-over Will can be used to fund the trust with your assets upon your death;
- Financial accounts – funds held in savings, checking, investment accounts, and some certificates of deposit can be transferred into a special needs trust by beneficiary designation.
- Retirement accounts – while, in most cases, the IRS prohibits you from transferring the ownership of your IRA or 401(K) during your lifetime, you can designate the special needs trust as a beneficiary of the account.
- Real estate – property can be sold or rented, and the proceeds can be placed in the special needs trust. Real estate can also be owned by a special needs trust. However, if you intend for the special needs individual to reside in the property, make sure that you also provide enough funds for the upkeep of the property, insurance, real estate taxes, and any other costs associated with maintaining the property.
- Life insurance – life insurance can be a very effective, efficient, and in many cases, tax-free means of funding a special needs trust.
Consult with an Experienced Virginia Estate Planning Attorney
It takes knowledge and experience to properly set up and fund a special needs trust that will provide for your loved one without risking their eligibility for public benefits.
If you have questions or concerns, or would like help setting up a special needs trust for a loved one in Virginia, please contact our law firm today at (703) 553-2577 or use the contact form on our website to arrange a consultation with an experienced Virginia estate planning attorney.
The information on this site is for general informational purposes only. The information presented in this site is not legal advice or a legal opinion. You should seek the advice of legal counsel of your choice before acting upon any of the information in this site.