What Is a Special Needs Trust in Florida Estate Planning?
When you have a family member with special needs, keeping your estate plan up to date is crucial. Many special needs children will be financially dependent on their families for the rest of their lives. It’s imperative to have a long-term plan in place that addresses this and will protect this person’s long-term financial well-being. Because many people with disabilities rely on public benefits, an inheritance or financial gift could void their eligibility requirements.
A special needs trust is one option for protecting your loved one without risking their assistance. However, a special needs trust can be tricky to set up, which is why you need an experienced West Palm Beach estate planning attorney to help.
What is a Special Needs Trust?
Properly drafted special needs trusts allow beneficiaries to qualify for government assistance while having income from the trust to cover other needs. In general, a trust is a legal relationship between multiple people—the grantor is the one who funds the trust; the trustee manages the trust and distributes funds according to the grantor’s wishes; and the beneficiaries are the ones who receive the trust’s funds.
Special needs trusts are customized to fit a situation involving someone with special needs. In most cases, the trust will specify how the funds can be used.
Types of Special Needs Trusts
There are several different types of special needs trusts. The first is a first-party special needs trust, which is created with assets belonging to the dependent. This type is used in situations where a dependent under 65 years old comes into money through a settlement or inheritance. When established correctly, this can keep the person’s governmental assistance benefits intact.
The second type of trust is a third-party one. It’s created because a third-party, like grandparents or parents, want to leave the dependent assets. It can be established in the will or created while the benefactor is alive. The trustee has discretion over the trust and cannot distribute funds directly to the dependent. Instead, they can pay for certain items and services that government assistance doesn’t cover. When the dependent passes away, the remaining assets can be distributed according to the benefactor’s wishes as detailed in the trust.
A pooled special needs trust is the third type of special needs trust. Nonprofit organizations can establish and manage either first-party or third-party pooled trusts for someone with special needs. This type of trust usually has little to no setup costs, and there are no tax returns required. It’s a relatively simple and cost-effective method of setting funds aside for your loved one. However, if money is withdrawn and doesn’t benefit the person with special needs, there could be a penalty. Other transfers in or out could result in penalties, which is one reason why you need to speak with an experienced attorney. When the beneficiary dies, the assets remain in the trust to help other special needs individuals.
Contact a Florida Estate Planning Attorney
If you have a child with special needs, you need to take extra precautions in your estate plan, so you don’t jeopardize your loved one’s government benefits. To learn more special needs estate planning, contact the West Palm Beach estate planning attorneys at the Law Offices of Larry E. Bray, P.A. today to schedule an initial consultation.