You have an heir with special needs, and you are trying to figure out your best course of action during your estate planning. You want to provide for that person and help him or her significantly after you pass away, but you do not accidentally want to do something with unintended consequences. What should you do?
One option is to use a special needs trust. This sets money aside from your estate to help the individual, keeping it in the trust rather than passing it to the person directly. There are some major advantages to doing this, such as:
- Making sure that the individual is still eligible for government assistance in the form of Medicaid or Supplemental Security Income (SSI). The trust can pay any additional costs over what that assistance covers. Leaving money directly may increase a person’s wealth so that he or she becomes ineligible, but the trust does not do so.
- Ensuring that the money that you leave behind is actually used to care for that individual. If you worry that others may try to take advantage of the person, a trust is safer than a direct gift.
- Giving you a way to deduct the money for tax purposes.
- Keeping the funds away from any creditors. For instance, if your heir has outstanding debts, creditors cannot take the money from the trust. It is not technically part of your heir’s estate, so it is protected, and you know that it will only be used as instructed by the trust — to care for the beneficiary.
As you can see, it is very important to look into all of your options when doing estate planning. With careful planning in advance, you can leave behind a legacy you’ll be proud of.