If you have a disabled loved one (a mentally disabled child, for example, or a relative injured in a serious accident), you might establish a special needs trust to provide for hm both before and after you die. A trust is established, in part, by appointing a trustee (and perhaps an alternate trustee), drafting a trust document which directs the trustee on how to distribute its assets and income, and funding the trust with cash and/or non-cash assets.
The Unique Dilemma of Special Needs Trusts
One concern relating to a special needs trust is that the beneficiary might not be able to work, and therefore he might not be able to support himself. Indeed, he may be dependent on needs-based federal assistance such as Medicaid and SSI. The problem here is that you are caught between a rock and a hard place.
One one hand, government need-based assistance provides only a small amount of income, and you may want your special needs relative to enjoy more than a bare subsistence standard of living — education and hobbies, for example — which you might be in a position to provide by setting up a trust. One the other hand, if your beneficiary receives more than a little bit of income, be could become “too rich” to qualify for federal needs-based benefits.
If these government assistance benefits are canceled, the trust will have to make up the difference, thereby eating into the funds you had set aside to provide him with education, hobbies and the like. And that, unfortunately, defeats the purpose of setting up a special needs trust in the first place.
The Solution: A Carefully Crafted Third-Party Special Needs Trust
A third-party special needs trust is established with the funds of someone other than the beneficiary himself — a parent, for example. The best way to handle the government assistance dilemma is to forbid the trustee from distributing funds directly to the beneficiary — instead of sending him money to pay for tuition, for example, the trust could pay the educational institution directly.
Since the money didn’t pass through the beneficiary’s hands, it will not be counted as his income for the purpose of determining his eligibility for need-based government assistance programs. Your beneficiary then enjoy the following benefits:
- The non-cash benefits that the trust provides on his behalf;
- A certain amount of cash that doesn’t exceed need-based government assistance income limits;
- Seamlessly continuous distributions after you die, since trust assets are not subject to probate and its inevitable delays; and
- Potential donations to the trust from other people, both before and after you die.
Contact the Professionals at Lorenzo Law
Here at Lorenzo Law, we have been setting up third-party trusts and assisting with their administration for years now. If you considering establishing a special needs trust, contact trusts and estates attorney Jose Lorenzo by calling (305) 999-5411, completing our online contact form or visiting one of our offices in Coral Gables and Ft. Lauderdale. We handle cases throughout the entire state of Florida.