Excerpted from Special Needs Trusts, by Steven Elias and Kevin Urbatsch (Nolo).
For many families, special needs trusts work to help support a loved one with special needs without jeopardizing that person’s eligibility for government benefits. However, special needs trusts aren’t the right solution for every family. Trusts can cost time and money to administer, and the person serving as trustee may be called on to make difficult decisions about investing and spending trust assets.
Rather than rely on a special needs trust, you may be inclined to leave some money to a friend or relative who agrees to watch out for your loved one’s needs after your death.
Unfortunately, this informal approach has several serious downsides. The main problem is that because the person to whom you leave the property will own it outright, there is no way to ensure that the money will end up benefiting your loved one, no matter how honorable the intent at the outset. For example, the money would be subject to that person’s creditors in a lawsuit or bankruptcy. Or the property could pass to that person’s heirs if he or she suffers an untimely death. Or it could go to a spouse in the event of a divorce. Also, because the laws that govern trustees won’t apply, if the person spends the money on a new car instead of on your loved one’s needs, there is nothing that anyone will be able to do about it.
If you don’t expect to leave much property to your loved one, this approach may be preferable to setting up a trust that will last only a year or two before the money has been spent. You could attach a letter to your will or living trust explaining what you are doing and request that the money be spent in a way that doesn’t interfere with your loved one’s SSI and Medicaid benefits. However, this is not preferred if you want the most protection for your loved one with special needs.
Leaving money directly to a person with a disability will almost certainly eliminate his or her eligibility for SSI and Medicaid. It also may have a devastating result if that person lacks the capacity to manage money. The only time it may be better to leave property directly to your loved one with a disability is if that person is unlikely to ever qualify for SSI and Medicaid and can be trusted to manage the funds.
Learn more about special needs trusts protect eligability for givernment assistance in How Special Needs Trusts Work.
If you don’t want to set up your own special needs trust, you may be able to join an existing “pooled trust.” Almost every state has at least one nonprofit organization that operates this type of trust, in which gifts to many disabled beneficiaries are combined so that they can be efficiently and professionally managed. The trustee invests and spends funds for the beneficiaries without affecting their eligibility for SSI and Medicaid. If you sign up for one of these pooled trusts, you can leave the trust details to them.
Learn more about Pooled Trusts.
Learn more about Special Needs Trusts on Nolo.com.
Special Needs Trusts, by Steven Elias and Kevin Urbatsch (Nolo) provides all of the information and forms you need to create your own third-party special needs trust without the help of a lawyer.