What Is a Special Needs Trust in Indiana and How Do They Work?
Planning to leave money and other assets for loved ones via trusts allows you to protect those assets from a variety of outside forces, including creditors. Special needs trusts provide a different type of protection for your loved ones: They ensure your loved one with a disability doesn’t own the assets in question.
This is important because ownership of those assets could impact your loved one’s ability to access critical government benefits, including Social Security Disability payments or Medicaid. Find out more about special needs trusts below and how to include them in your estate planning as necessary.
Why Should You Set Up a Special Needs Trust?
The purpose of a special needs trust is to provide assets and support for a loved one with a disability without impacting their access to government and other benefits.
For example, your adult child with a disability may have access to Medicaid, SSDI payments, food and housing support, and other benefits. Most of these benefits programs have two basic requirements: the person must have a recognized disability under the program and they must meet income and asset thresholds to qualify financially for the benefits.
If you give your loved one money or assets or leave assets to them in your will, they may no longer meet the financial thresholds for such programs. That means they lose their benefits. The assets you left them now have to be used to pay for things the programs previously paid for until the person runs out of money and can potentially qualify for those programs again—a process that can be cumbersome and stressful. In some cases, they may lose access to benefits that can’t be easily replaced simply by purchasing services.
However, if you leave assets to a loved one in a trust, they don’t own the assets—the trust does. Your loved one can benefit from the assets held in the trust without losing access to their government benefits. For example, assets in the trust can be used to pay for vision, dental, and medical care that isn’t covered by other benefits programs. It could also provide money to help cover the cost of companions and other necessary expenses.
What Are Some Factors to Consider When Setting Up a Special Needs Trust?
How to best set up a trust and what options are right for you depend on a variety of factors. Some of the things that you should consider when setting up a special needs trust include:
- How you want to fund the trust. Are you funding it with a one-time transfer of assets? Do you want to be able to transfer other assets into the trust in the future or offer other people in the family a way to make donations into the trust?
- What assets you want in the trust. You can put cash or other types of liquid assets in a trust, but you can also put real estate, investments, and even insurance policies in a trust.
- Who you want to manage the trust. During your lifetime, you may choose to manage the trust yourself. However, you’ll want to appoint someone you can trust to manage the assets when you’re no longer able to. You can choose a willing and trustworthy loved one or work with an attorney or other professional who can administer the trust for a fee.
- The impact of Medicaid, if applicable. In some cases, the trust may need to reimburse Medicaid after the beneficiary passes away. Understanding the complete picture of your loved one’s benefits and how they interact with financial assets can help you plan properly for the future.
- Whether you also want to donate to charity. The Special Needs Trust Improvement Act in 2022 created more flexible paths for individuals to fund special needs trusts with retirement benefits while also donating some of those benefits to charity if desired.
Third-Party vs. First-Party Special Needs Trusts
You’ll also want to consider whether you’re setting up a third-party or first-party special needs trust. A third-party special needs trust is one that you fund for the benefit of someone else. These are typically created by individuals for their loved ones with disabilities.
A first-party special needs trust is funded with the assets belonging to the person who benefits from the trust. This option is typically used when someone who did not previously have a qualifying disability ends up with an illness or injury that leads to one. For example, an adult who is involved in a car accident that leaves them with brain damage may need a special needs trust. Their own assets can be used to create it.
How Can an Estate Planning Attorney Help With Special Needs Trusts in Indiana?
Trusts are complex legal tools, so having an experienced attorney help you plan any type of trust can be important. An estate planning attorney can help you understand the future financial ramifications associated with a special needs trust so you can make appropriate decisions about how to use your assets to protect and care for a loved one now and when you’re no longer able to physically.
For more information about how we can help with a special needs trust—or with protecting your assets and legacy for the future—make an appointment with Katie Charleston Law, PC, today.