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What are some advantages to special needs trusts?

On Behalf of | Jun 6, 2019 | Trusts & Trust Administration |

Parents of special needs children in New Jersey may have concerns about how their child will be cared, especially after the child is an adult and the parents pass away. While parents may want to ensure that their adult special needs child receives the government benefits they need, such as Medicaid and Supplemental Security Income, they may also want to leave some of their assets to their child for the child’s care. However, this can be complicated, as most government benefits have low thresholds for the income a disabled adult can have to qualify for benefits. For this reason, some parents choose to execute a special needs trust for the care of their child.

In a special needs trust, the beneficiary can still receive an inheritance, be given gifts and receive other funds without losing their government benefits. This is because these assets will belong to the trust, not the beneficiary and will be managed by a trustee. Even a beneficiary’s own assets can be included in a special needs trust, since they will also belong to the trust and be managed by a trustee. There are several types of special needs trusts.

One type of special needs trust is a first-party trust. The beneficiary’s own assets will be placed in this trust. During the beneficiary’s lifetime, these assets will be used for their care. Once the beneficiary passes away, the assets left in the trust will then be used to pay the government back for the Medicaid services provided.

Third-party trusts can be funded with any assets that belong to the relatives, as well as assets such as a house and investments. These assets will be used for the needs of the beneficiary that are not already covered by government benefits. However, unlike a first-party trust, once the beneficiary dies the remaining trust assets can be passed on to the beneficiary’s heirs or a charity, rather than the government.

These are only some types of trusts that can be used to assist adults with special needs. It can be a great relief for parents of special needs children to know their child will be cared for as an adult. However, since this post does not contain legal advice, parents who want to set up a special needs trust as part of their estate plan will want to seek the guidance needed to determine how to meet these goals.