Estate Planning Tools to Transfer Assets – Special Needs Trusts

Estate planning helps make sure that your assets go to your desired beneficiaries after you pass away. These tools, such as gifts, wills, beneficiary designations, and trusts, are strategies that elder law attorneys use to create an estate plan.

This week we will discuss special needs trusts.

A special needs trust is a way to leave assets to a disabled person while preserving that person’s eligibility for public benefits such as Medicaid and Supplemental Security Income (a Social Security benefit). Assets left to a disabled person in this manner do not have to be spent down to $2,000 to maintain public benefits eligibility.

The funds in the special needs trust can pay for “extras,” or “special needs,” that would improve the disabled person’s quality of life, such as travel expenses, cell phone, cable television, tickets to the symphony or sporting events, and many other things not provided by public benefit programs. The disabled person retains the government benefits to pay for the basic necessities of life, such as certain services, food, and shelter.

Some special needs trusts are created in a will or trust, usually by the parents of the disabled person as part of their estate plan. The parents specify that any bequest for the disabled child be held in a special needs trust. The parent selects a trustee, who has the responsibility to use the funds for the benefit of the disabled person.

A special needs trust can also be created with assets that the disabled person owns, or with proceeds from the settlement of a personal injury case. However, there are additional restrictions when the disabled person uses his or her own money to set up the trust. Illinois currently does not permit a person age 65 or older to use her own money to set up a special needs trust.

An inheritance left directly to a disabled person can actually worsen his or her quality of life by terminating public benefits. An inheritance left to a special needs trust for the benefit of the disabled person allows public benefits eligibility to be maintained, and establishes a fund to improve his or her quality of life.