Caring adult daughter greeting happy surprised senior mother in retirement community

What Is a Special Needs Trust and How Does It Work?

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Imagine your elderly parent has finally agreed to sell the house and move into a nice retirement community closer to you. You both agree that the sale proceeds will go to helping them enjoy their retirement. Most of the money for the retirement village should be deducted from their social security, or so you thought. That was until you spoke with the facility and found your parent had to “spend down” the money from the sale of the home until there was nothing left. This could have been avoided with a special needs trust. 

Special Needs Trust Eligibility

Special needs trusts are made for individuals that cannot care for themselves, either because they are physically disabled, mentally disabled, or chronically ill. This includes individuals of all ages who made need part time or full-time care. Often, these individuals also qualify for state sponsored assistance in the form of Social Security, Medicare, Medicaid, or disability insurance.

More About Special Needs Trusts

A special needs trust is a trust with a specific intent. It is made to supply additional funding for a disabled or chronically ill person without rendering them ineligible for social programs that require their income remain below a certain limit. The special needs trust has a trustee, a beneficiary, and must be funded to function. The trustee is usually the caretaker who creates the trust for the disabled individual. The disabled persons assets then are placed in the trust under the care of the Trustee. This is called “funding” the trust. A third party, such as a parent, can also fund a special needs trust with assets they own for the benefit of their child.

Do You Need One?

Remember that scenario above? It happens more often than you think. If you, or your family member collects money from social security, or any of the other public assistance programs available to the elderly and disabled, you are subject to certain rules and regulations. Some of these regulations require that the individual collecting public benefits have an income below a certain threshold. That income level is determined by the MAGI or Modified Adjusted Gross Income which is determined by the U.S. Medicaid office. 

If the person collecting public benefits income is above the MAGI level, the benefits that person will receive will decrease. Income is not limited to the amount of money the disabled person may earn. It may also include rents, pensions, IRA distributions, life insurance dividends and lawsuit awards. You can find a complete list in IRS Publication 525 – Taxable and Non-Taxable Income here.

How Does a Special Needs Trust Work for Me?

If you are the disabled person who is considering a special needs trust, the answer is simple. This type of trust will supply the protection you need to keep your assets and your necessary disability benefits. For example, if you receive a small inheritance of $5,000 without a special needs trust, you may lose some of your disability income. However, with a special needs trust, you would be protected. 

If you are a family member considering a special needs trust for another individual the answer is the same. The protection a special needs trust provides includes retirement income, pensions, the sale of major assets, and much more. It is the best way to financially protect your loved one in their senior years. 

This Seems Difficult – I Think I Need Help

We know that creating a special needs trust may seem overwhelming. This is why we take you through the process step-by-step so that you don’t make a mistake. An attorney should always craft a special needs trust for your family member. They also should be familiar with your family dynamic and financial situation to better protect your assets. Lori and her staff will be able to explain this process to you clearly, so you feel comfortable each step of the way. 

If you are considering a special needs trust for your family member, you may also be considering a guardianship. You can read more about guardianships and how they can benefit your family in my blog “Florida Guardianship – You Should “Care A Lot”. Gain peace of mind and contact The Law Office of Lori Vella today. 

Lori Vella is an Estate Planning and Business Attorney. She works virtually throughout Florida and New York, but has her home office in Tampa, Florida. She is mom to a little boy which ignited the passion for helping other families. She and her son enjoy car rides, playgrounds and taking mini-adventures. They also have an organic garden that surprisingly yields vegetables. Lori considers herself well-versed in Seinfeld and welcomes any trivia!

Disclaimer: The Law Office of Lori Vella’s website contains general information directed to Florida residents. This firm does not intend to give legal advice through its pages and/or blog. If you need legal advice, we encourage you to find an attorney licensed in your state. This language on this website does not create an attorney-client relationship between you and this firm.

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