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Two Smart Reasons for Creating a Supplemental Needs Trust for Loved Ones with Special Needs

A special needs trust is a legal document that can help to better ensure the care of loved ones who are unable to make decisions on their own. This legal tool, also referred to as a supplemental needs trust, offers many benefits.

What are the benefits of a supplemental needs trust?

  • Continued eligibility for financial assistance: If structured wisely, this trust can provide financial assistance without disqualifying the beneficiary from public assistance programs like Medicaid.
  • Money management options: It can include instructions for money management. A third party can manage the money for the intended beneficiary.

    How is a supplemental needs trust funded?

    A creator can fund a supplemental needs trust with assets of the estate or a life insurance policy. The use of an insurance policy may be more favorable than it once was due to the recent passage of the Tax Cuts and Jobs Act (TCJA). This tax reform resulted in an increase in the estate tax exemption, essentially doubling this amount to $11.8 million in 2018. This higher exemption amount may allow a family more planning flexibility: Instead of only planning for funds to transfer to a special needs trust to care for a disabled loved one, families now have a larger amount to work with and could plan for other family members without concern of exceeding the estate tax exemption amount.

    Once funded, the trust can provide financial support to cover the things not covered by public assistance programs. This can include educational opportunities, therapy, some medications and additional niceties.

    The exact language used to put together a special needs trust will depend on the details of the circumstances. As such, it is wise to seek legal counsel to structure a supplemental needs trust to meet your unique situation.

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