If you have a family member who is disabled or has a health condition that makes them dependent, you may wish to look into setting up a special needs trust. The money that is put into a special needs trust could help pay for supplemental needs that may not necessarily be covered by Social Security Income or Medicaid. Federal and state government programs tend to support only very basic and essential needs of disabled or dependent individuals who are at or below the poverty line.
So, in such scenarios, a special needs trust allows parents, caregivers and other parties to contribute money to benefit the individual with special needs while also enabling him or her to still receive benefits such as SSI and Medicaid such as money spent for eyeglasses or dental work. In Virginia, those who receive these types of government assistance may not have more than $2,000 in assets. This includes bank accounts, property or other income.
Special needs trusts serve the important role of protecting the disabled person from financial abuse provide a mechanism to ensure that the money is being spent in a prudent manner. Also, the money you put in the trust will not be counted as “income,” but when you give money directly to the individual, that would count as income and lead to benefits being reduced or even suspended.
One important question to ask is how much money to put in a special needs trust. This would depend on several factors including the nature of the individual’s disability and the level of care he or she needs. Depending on those factors, your loved one’s needs may range from thousands to millions of dollars. For example, if your loved one is paralyzed and needs 24/7 nursing care, the money you put in a special needs trust will be much higher than caring for someone who is in the autism spectrum.
There is no minimum required dollar amount to fund a special needs trust. You may fund a trust with lawsuit awards, life insurance policies or other types of family assets such as sale of property. Special needs trusts could be first-party trusts, which are set up by those who have assets before they become disabled or get money after qualified for government assistance programs. However, the more common type of trusts are third-party trusts, which are usually set up by family members to benefit and care for children with special needs.
There are also other options available for families with limited financial means that wish to set aside money for a loved one with special needs. Under a federal law that passed in 2016, families can set up ABLE accounts, which are quite similar to college saving plans and can be simpler, less-expensive way to go. These ABLE accounts can accumulate up to $100,000 without affecting the person’s benefits.
Setting up a trust for a family member with special needs can be challenging and tricky. The rules and regulations in this regard are quite stringent and you do not want your loved one running the risk of losing valuable benefits. Our Virginia estate planning lawyers can help you avoid these pitfalls so you can have the peace of mind that your loved one’s future and quality of life are secure.