You are going to leave money behind to an individual with disabilities that prevent that person from working, and you are trying to figure out the best way to do it. Should you leave that person a direct inheritance or should you set up a special needs trust?
What you choose is up to you, but there is one huge benefit to creating the trust.
Remember, the individual to whom you plan to leave the money may qualify for government assistance programs. These could include things like Medicaid, subsidized housing, Supplemental Security Income (SSI) and vocational rehabilitation.
If you leave money directly to that person, he or she may then stop qualifying for these programs, which are based on need. That lump sum may put him or her over the threshold, leading to a cancellation of the benefits.
If you create a special needs trust instead, the trustee then control the money and manages the trust itself. It does not count as an asset that your loved one owns since that person cannot revoke the trust, remove money from it or use those assets in any way outside of the scheduled payments.
That means the money in the trust gets ignored by government program administrators, and the person still qualifies for government assistance.
Do not make the mistake of thinking that any tactics for passing on your assets bring you to the same outcome. You may think you’re doing a nice thing when it actually hurts the person’s financial future. Make sure you really know about all of the options you have to pass those assets on successfully.
Source: FindLaw, “Special Needs Trusts FAQ’s,” accessed May 11, 2018