Limits on the Use of Money in a Special Needs Trust
A special needs trust is an important tool that you should use to help ensure that a disabled loved one is provided for. Whether you are trying to help a person with a disability to preserve his or her own assets (such as money from an injury settlement) or you wish to make an inter vivos gift or bequest, a special needs trust is likely the right legal tool to use.
Zimmer Law Firm can help you to determine if you need to create a special needs trust or if there is another type of trust or estate planning tool that can help you to accomplish your goals.
Give us a call to find out more about how our legal team can assist you with trust creation. One of the most important things our firm can help with is understanding the rules for special needs trusts so you can ensure this trust provides the desired protections for your loved one with a disability.
What is a Special Needs Trust?
A special needs trust is a type of trust that is created in order to make it possible for money or property to be provided to enrich the life of a disabled person without causing a loss of access to means-tested government benefits.
Many people who have disabling conditions are reliant on benefits including Medicaid and Supplemental Security Income, both of which are needs-based programs. Getting money or property from a personal injury settlement, inheritance, or gift could result in a loss of access to benefits programs that limit eligibility based on both income and resources.
This means that if you want to leave an inheritance to a disabled child, for example, your gift of money or property could actually be damaging by causing a loss of access to benefits that your child relies on. A special needs trust allows you to get around this limitation on resources while providing money and property that can be used to enhance the quality of life of the person with the disability. The creation of the trust also makes it possible to name a trustee to manage trust assets, as managing money may be something that the person with the disability isn’t able to do.
Limits on the Use of Money in Special Needs Trusts
When you create a special needs trust, you need to provide instructions for how the trustee can use trust assets to provide for a disabled person. The trustee has a fiduciary duty to comply with the law, comply with your instructions, and use trust assets to benefit the person with the disability who the trust was created to provide for. The trustee needs to know how the money can, and cannot, be used.
The most important thing to remember is that this type of trust is designed to provide for the supplemental needs of the person with the disability, including things that aren’t provided for by government benefits. The person with the disability cannot simply be given cash from the trust, but instead the money must be used to provide for items of use that add value to the disabled person’s life.
If cash money is distributed from the special needs trust to the person with the disability, this cash could jeopardize access to the very benefits that the trust was created in order to protect. The law also precludes the use of trust assets to provide in-kind gifts that are too similar to cash. For example, trust assets shouldn’t be used in order to pay rent for the person with the disabilities who the trust was created to benefit. It is generally also considered a bad idea to give gift cards or the equivalent to the person with the disability, as these can be seen as cash equivalents that are too similar to simply giving money.
An experienced attorney can provide advice to trustees about what funds in a special needs trust can be used for, and can provide assistance during the trust creation process in providing appropriate instructions for exactly how trust assets are to be used.
Getting Help from A Cincinnati Trust Lawyer
Zimmer Law Firm can provide the help you need to make effective use of legal tools designed to protect people with disabling conditions. To learn more about what special needs trusts are, why you might want to create one, and what the rules are for trust creation, give us a call at 513.721.1513. You can also download our estate planning checklist to find out about different types of trusts that could help you to protect your assets and provide for your loved ones.