If you have a loved one with special needs, you may want to consider creating a special needs trust to help provide for their care. Special needs trusts are very useful because they allow those with special needs to maintain sufficient resources while protecting their eligibility for government benefits. There are many different ways to create and fund a special needs trust. Using a pooled trust in your special needs planning is one good option to consider. Let our trust lawyers explain the benefits so you can make an informed decision.
What is a Special Needs Trust?
A Special Needs Trust is a specific type of trust, the purpose of which is to provide future care for a disabled individual. In the event a caregiver is unable to continue caring for someone with special needs, the special needs trust will then provide the assets required to continue the necessary care.
Special Needs Trusts are irrevocable, meaning they cannot be canceled and the assets in the trust are protected from creditors or other judgments. Another benefit of a Special Needs Trust is that it protects the trust funds so they do not count as financial assets for purposes of eligibility for government benefits.
Categories of Special Needs Trusts
As our trust lawyers can explain, there are two kinds of Special Needs Trusts. The General Support Special Needs Trust is considered the primary source of benefits for a disabled individual. The Supplemental Care Special Needs Trust is most often the secondary source of support once government benefits are exhausted. The Supplemental Care Special Needs Trust is the most common type.
How is a Special Needs Trust established?
A Special Needs Trust can be established during the lifetime of the caregiver, as well as, through the last will and testament. The trust becomes effective when it is signed and notarized by the grantor (the person creating the trust). A tax identification number is required from the IRS. Then a bank account can be opened with a minimum deposit. After that, the trust can be funded through a variety of estate planning tools. For an understanding of how these different tools work, ask our trust lawyers.
What is a pooled trust and how does it work?
A pooled trust is a specific kind of trust created and administered most often by a nonprofit organization. There are no restrictions on who is allowed to contribute to a pooled trust. In fact, the beneficiary is even allowed to contribute, which is not always the case with other types of trusts.
This type of trust is referred to as a “pooled” trust because the trust funds come from several beneficiaries and are pooled together, for investment purposes. The nonprofit organization makes investments on behalf of all of the beneficiaries. If there are any funds left when the beneficiary dies, those funds are used to help others with special needs, as opposed to being surrendered to the state.
The benefits of pooled special needs trusts
When you join a trust that has already been established, you can enjoy the benefits of investing a large amount of money, which is a great option for people with modest means. Establishing the trust is simple, as there is no new trust document that needs to be drafted. All that is necessary is executing a Joinder Agreement, setting out the membership terms of the trust.
Even though your assets are pooled together for purposes of the trust, the nonprofit organization will establish a separate account for each individual member. The benefit comes when all of the assets are pooled together, which allows the trust to maximize the return on the investments while reducing the costs of management and administration of the trust.
First-Party and Third-Party Pooled Trusts
Not every pooled trust is the same. For example, a first-party pooled trust is used only to hold the benefits the person with special needs, receives from public assistance. On the other hand, the purpose of a third-party pooled trust is to hold funds other than public benefits. The distinction is significant because, upon the death of the individual with special needs with a first-party pooled trust, all remaining assets are usually retained by the non-profit organization. Third-party funds can go directly to the heirs, instead of being retained by the organization.
Pooled trusts provide flexible planning
In addition to investment benefits, pooled trusts provide a great deal of flexibility. Pooled trusts can be used even when it is not certain that a special needs trust is necessary. Since each family is unique, your estate planning attorney can include language that will prompt the trustee to convert an inheritance to a special needs trust, if necessary.
Join us for a FREE seminar today! If you have questions regarding estate planning, trust contests, or any other trust administration issues, please contact the Schomer Law Group either online or by calling us in Los Angeles at (310) 337-7696, and in Orange County at (562) 346-3209.
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