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Special needs trusts a valuable estate planning tool, P.2

On Behalf of | Jan 13, 2012 | Estate Planning |

In our previous post, we began looking at special needs trusts and the benefits they present for estate planning.

Special needs trusts can hold a number of types of assets, including money wom in a lawsuit resulting from an accident that disabled a person. And these funds are insulated from creditors, including the government. Special needs trusts are widely considered the most effective way to transfer wealth to a disabled child or grandchild without putting his or her eligibility for government assistance at risk.

Must be created and funded by a third part, meaning that disabled persons cannot create the trust or fund it with his or her own assets nor have control over them. An independent trustee must be selected for this purpose. The trustee should have discretion to make non-support distribution of trust income and principal to benefit the disabled person.

Trust payments must go directly to service providers rather than the disabled person, and the trust itself should include provisions which protect trust income and assets from creditor claims.

Special needs trusts can be revocable or irrevocable, and may be set up during the grantor’s lifetime or through the grantor’s will or other trust documents upon their death. It is best set up prior to the beneficiary’s 18th birthday, but not necessary.

Also important is that the trust, rather than the disabled person, be listed as the beneficiary for any IRA and 401(k) accounts, as well as annuities and life insurance policies. It is also wise to let family and friends know that they should not make an outright gift or leave an inheritance to the disabled person directly.

There are a number of options with special needs trusts. Each family will have slightly different needs, and it is best to speak to an attorney regarding your specific situation.

Source: Business Insider, “Unique Ways To Ease The Financial Burden Of Special Needs Care,” Joe Mont, January 11, 2012.