Trusts can help provide for the vulnerable

Trusts can help provide for the vulnerable

On Behalf of | Jan 19, 2021 | Estate Planning |

Trusts are powerful instruments for wealth management and estate planning. They are also highly customizable, and can be adapted for a wide variety of purposes. For instance, many wealthy people set up trusts to help provide for their favorite charities.

However, trusts are not just for the wealthy, and not just for big causes. One fairly common type of trust is used to provide for vulnerable adults.

A special needs trust provides a way to financially support a vulnerable loved one while maintaining their eligibility for government benefits.

Why it’s necessary

To understand how this type of trust works, first remember that Medicaid and many other medical assistance programs are means-based. People are only eligible for these programs if they have less than a certain amount in assets.

Next, imagine that two parents want to provide for their adult child, Margo, who is disabled and lives in an assisted living facility with the help of Medicaid benefits. Margo’s parents can’t afford to pay for her care without Medicaid, but if they leave a bequest to Margo in their wills, this could mean Margo would lose her eligibility for her benefits. With her inheritance, Margo wouldn’t have enough to pay for her care for the rest of her life, but she would have too much to be eligible for the care she needs.

How it works

A special needs trust can help Margo avoid this problem. Rather than leaving the assets to Margo in their wills, her parents place the assets in a trust. They name a trustee who has a duty to manage the assets for the benefit of Margo.

The trustee invests the assets in order to preserve wealth, and makes regular payments to Margo or her caregivers. Because she is a beneficiary and not the owner of the assets in the trust, Margo does not lose her Medicaid eligibility.

Special needs trusts require careful planning. Those who have vulnerable adults in their lives can speak to an experienced estate planning attorney about their options.