If you have an heir or beneficiary with special needs, you know that it may take a bit more consideration to include them in your estate plan. You do want to leave them an inheritance, and you can see that they may benefit from it more than other beneficiaries. There is a distinct need, and you have a chance to meet that need through the distribution of your estate.
But you don’t want to make any mistakes that could cause that beneficiary unintentional problems. For instance, if you just leave someone $100,000 in your will, then the government may cut off any benefits that they were previously eligible for. If there is a means test for those benefits, they may simply have too many assets to pass the test. They have to spend those down first and reapply. If they were already getting assistance with housing, food or even medical care, the inheritance you leave them could disrupt that assistance.
Setting up a trust
To get around this, you can create a special needs trust. The beneficiary is still the same, but a trustee is in charge of making the distributions. The trust itself owns or holds the assets.
This is an important distinction because it means that those assets are not directly owned by the beneficiary. They will still pass the means test and will be eligible for government benefits. They don’t have to spend the assets down, so the benefits are not disrupted at any point.
Even so, they can take assets out of the trust to use to supplement those benefits. For instance, maybe they already have housing benefits, so they can’t use the trust for that purpose, but they can use it to help cover the cost of certain utilities or additional medical care.
As you can see, it’s important to plan carefully when creating an estate plan so that it doesn’t have unintended consequences. Make sure you know exactly what steps to take.