Many people with special needs count on government assistance programs. These can include things like Medicaid or Social Security.
But when they apply for these benefits, there are restrictions placed upon them based on their income and assets. They essentially have to pass a means test. If they have too many assets or their income level is too high, they are not going to qualify.
This can sometimes be problematic when an elderly individual passes away and leaves that beneficiary an inheritance in their will. If the inheritance is large enough, it could raise their asset level so high that they are disqualified from the benefits they need. This often means that they first have to spend the inheritance down and then reapply.
A special needs trust does not count
The advantage of putting the inheritance into a special needs trust, instead of leaving it directly in a will, is that it does not count toward the person’s personal assets. Instead, it is the trust that owns the assets, so the money in that trust does not count toward the beneficiary’s total net worth.
Ideally, a special needs trust also allows the trustee to make decisions about how to use the funds. They can consider what areas are covered by government benefits, for example, and then use the funds from the trust to help the beneficiary address other costs that may not be covered.
In other words, careful planning can help an inheritance go a long way without the unintended consequence of disqualifying someone from the benefits they need. If you are drafting an estate plan, make sure you know exactly what legal options you have at this time.