For families with a loved one who has a disability, a special needs trust can offer long-term financial protection. This type of trust allows assets to be set aside for the beneficiary without affecting eligibility for government programs such as Medicaid or Supplemental Security Income.
Creating a special needs trust requires careful consideration. Each step plays an important role in making sure the trust meets legal requirements and supports the beneficiary’s unique needs. These steps are as follows:
Choose the right type of trust
There are three main types of special needs trusts. A first-party trust is funded with the beneficiary’s own assets, such as funds received from a settlement or inheritance. A third-party trust is created using assets from someone else, typically a parent or relative. A pooled trust is managed by a nonprofit organization and combines resources from multiple beneficiaries while keeping each account separate. The appropriate type will depend on the source of the funds and the specific circumstances involved.
Select a responsible trustee
The trustee will be in charge of managing the trust’s assets, handling distributions and making financial decisions in the best interest of the beneficiary. This role can be filled by a family member, a professional fiduciary or an institution. It is important to choose someone with both financial knowledge and a clear understanding of the trust’s purpose.
Draft the trust document
A well-crafted trust document sets the foundation for how the trust will operate. It outlines the roles of all parties involved and specifies how funds can be used. This document must be legally sound to protect the beneficiary and comply with public benefit regulations. Working with professionals can help avoid mistakes during this stage.
Fund and manage the trust
Once the trust is established, it must be funded properly. This can include cash, property, life insurance proceeds or other assets. The trustee will then manage the trust over time, keeping records, handling distributions, and staying informed about changes in laws that might affect the trust.
Seeking legal guidance can help create and maintain a special needs trust with confidence and care.