As we have discussed previously in our blog, trusts can be powerful tools to protect and distribute assets for individuals in a variety of circumstances. One particular kind of trust is called the special needs trust, which is designed specifically for individuals with a disability. This type of trust distributes assets without eliminating its beneficiaries from public benefits, allowing them to receive the care they need while also maintaining a high quality of life even with their disability.
What Are the Kinds of Special Needs Trusts?
First, there is a “first-party trust,” which forms when a trust beneficiary receives some kind of asset, whether it be in the form of money, property, or stock. Normally, when a person’s assets rise to a certain level, that person is disqualified from public benefits that could help provide care for their disability. By using the first-party trust, however, the individual can put the funds into a trust and still receive public benefits. The downside of a first-party trust is that when the beneficiary dies, the state Medicaid agency gets whatever funds are left over at the time of death.
A second kind of special needs trust, the “third-party trust,” forms when someone wants to give a person with a disability a gift or inheritance. The funds in the third-party trust don’t actually belong to the individual with the disability – they are only being used for that person’s benefit. One important upside to the third-party trust is that the government does not end up taking the remainder of the funds when the beneficiary dies, since the funds never belonged to the beneficiary in the first place.
How Could I Benefit from a Special Needs Trust?
Importantly, under the SECURE Act, beneficiaries of an IRA are obligated to use all the funds they have inherited within 10 years. There are exceptions to the ten-year cap, however, and one of the exceptions is for individuals with a disability.
If a beneficiary receives funds through a special needs trust, that person then has the rest of their life to use the assets available to them through the trust. Setting up this kind of trust takes time and expertise, as there are possible complications and loopholes to look out for throughout the process. If you are interested in exploring a special needs trust, the best thing you can do is contact an estate planning attorney that can walk you through the options specific to your case and circumstances.
Are You Looking for an Estate Planning Attorney in Texas?
At McCulloch & Miller, PLLC, we have decades of experience implementing these kinds of tools for our clients, and we take the time and energy to make sure we are helping our clients develop the estate plans that work best for them. Since every individual has a unique situation, every client has a different strategy. We are committed to helping you find the methods that help you achieve your goals.
For a consultation with a member of our Houston estate planning team, give us a call today at 713-903-7879. You can also fill out our online form to contact us today.