The whole purpose of a special needs trust fund, which can also be referred to as a supplemental needs trust, is to provide financial support for a disabled person without disqualifying them from receiving government assistance. Trust funds are usually set up as an inheritance, but depending on the type of trust fund, can also be used while the disabled person’s parents or caregivers are still alive.
There are three different special needs trust funds that can be set in place. These are the family trust, pooled trust, and the court-ordered trust. Each has specific requirements and laws.
First off, the family trust is the most common type of trust fund available. Parents usually establish it when they are still living, although it can be established after death if it is directed in their will. Those with a living trust can use the funds while the grantor, or trust creator, is still alive. If the trust is revocable, the grantor can make changes to the trust, as well.
A living trust is highly beneficial to those with special needs because it allows anyone, such as family members or friends, to contribute to the trust by either writing a check or including the trust as a beneficiary in their will. It is common for parents of children with special needs to purchase a life insurance policy and make it payable to the trust. However, when establishing a family trust, know that the money cannot be used for housing, food, or clothing, or it will disqualify the individual from Social Security benefits.
A pooled trust is established by a non-profit association. It is a good choice for families who do not have a lot of money or assets, because the organization is happy to handle smaller accounts. With a pooled account, though, the organization has control of the disbursements, but they also manage and invest the funds too. Each individual has his own account and can only be used to pay expenses outside what government assistance provides. When the disabled person dies, anything left over in his account will stay in the trust to help the others in the pooled trust.
Another type of trust fund is one that is ordered by the courts. Usually, these are special circumstances trusts and are usually ordered when the disabled person inherits money or receives a court settlement that will disqualify them from government assistance. Parents and guardians, grandparents, or the court itself can order this type of trust. If there is any money leftover when the disabled person passes, the money in the trust returns to the state.
When it comes to special needs trusts, there is a lot of research and time involved. Consulting with an attorney or trust advisor can help tremendously when setting up a trust. They will also be helpful in advising which type of trust is best for your child with special needs as well as the whole family.
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