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Mary Beth Kelly

Rules for a special needs trust

On Behalf of | Jun 4, 2021 | Estate Planning |

Florida parents who have children with special needs might want to consider creating a special needs trust to benefit them. Special needs trusts can help to protect the eligibility of people for means-tested benefits for which they are not allowed to have more than a couple of thousand dollars worth of assets in their names to qualify. These trusts can also help to ensure that the beneficiaries are protected from others who might try to exploit them. While a special needs trust might be important to include in your estate plan, it is important for you to understand the rules when you establish one.

No commingling of assets

When you create a special needs trust, you have to follow the rules outlined by the Social Security Administration. As the creator of the trust, you cannot fund it with your beneficiary’s assets. The beneficiary of a special needs trust cannot serve as the trustee or control any of the assets held by it. If your child’s assets are commingled with the other assets in the trust, that could potentially exclude him or her from public benefits eligibility.

Beneficiary cannot control the trust

When you create a special needs trust as a part of estate planning, the trustee must have complete control over how the assets are handled. The beneficiary must not be able to control the trust, including deciding to terminate it or withdrawing money at will. Instead, a trustee should be given discretion over when distributions are made. If the beneficiary has any control over the funds, it can be problematic for public benefits purposes.

Creating a special needs trust as a part of your estate plan might help you to protect your child after you pass away. However, setting it up correctly is critical for providing the type of protection you want your child to have. When you establish a special needs trust properly, your child can benefit from the proceeds tax-free throughout his or her life while still qualifying for Medicaid, Supplemental Security Income, and other public benefits.