If you have a dependent with special needs such as a physical or mental disability and are concerned about their well-being, then you should consider forming a special needs trust for their benefit.
A special or supplemental needs trust is a recognized planning document that is primarily used to protect the right to continue to receive public benefits. It can either be a stand-alone trust or testamentary, which means it would take effect and be funded at your death. Most public benefits programs such as SSI, SSDI, Medicaid and VA benefits have income and asset thresholds that, if exceeded, will disqualify an individual from receiving or continuing to receive those benefits. Often times, those benefits are the only avenue available to pay for care, so it is essential to preserve the right to receive those benefits.
A special needs trust can be effective when you want to leave an inheritance or gift to a disabled individual or when the disabled individual receives a personal injury settlement. If you leave the inheritance to them outright or if they receive the personal injury settlement outright, they may be disqualified from receiving public benefits. Public benefits typically provide for basic needs, so a special needs trust is an effective way to allow the disabled individual to have access to funds that can provide for a better quality of life and their material needs.
A special needs trust can be self-settled (formed by the disabled individual), can be set up by a third party such as parent, other relative or friend and can be created by court order.
Competent counsel should prepare the special needs trust. If the special needs trust is improperly drafted, it may open up the assets in the trust to garnishment, levy or attachment by a creditor or a governmental agency that has paid out benefits on behalf of the disabled individual.