As you make your estate plan, if you have a beneficiary with special needs, it may be wise to set up a special needs trust. This is a way to give them an inheritance. Instead of giving it to them directly, as you would with a will, you put the money into a trust and name that individual as the beneficiary of the trust. You will also have to select a trustee who can access the account and make appropriate distributions.
In a general sense, trusts are useful because they give you more control. You can specify the terms of the distributions, and you get to choose the trustee who will ensure that your instructions are followed. But with a special needs trust in particular, it is critical to consider that person’s access to government benefits.
Passing a means test
For instance, maybe the beneficiary who has special needs is unable to work. Because they have no income and limited assets, they can pass a means test and qualify for government benefits.
But if you gave that person a large inheritance, even though you may think that you are helping their situation, it may actually mean that they no longer pass the means test. Their benefits could be revoked. They would then have to spend down the inheritance that you left them before reapplying for benefits.
When you put the same inheritance into a special needs trust, however, the beneficiary still passes the means test. They retain their benefits, and the trustee can help use the money to cover any additional costs.
Planning in advance
As you can see, it is important to carefully plan in advance when drafting an estate plan so that you can avoid any unintended negative consequences. It can help to work with an experienced attorney at this time.