What is a Special Needs Trust?

Roseville Estate PlanningA special needs trust is a type of trust that directs a trustee to make discretionary payments to a specified beneficiary that has some type of disability for which they receive governmental benefits. Absent a special needs trust, the distributions to the special needs beneficiary would likely disqualify him or her from important governmental benefits. Disqualification would likely occur because of the income received via the special needs beneficiary’s inheritance.

Life Insurance and Special Needs Trusts

Life insurance is paid upon death of the policy holder and the proceeds are usually kept out of the decedent’s, or policy holder’s, estate. However, when there is a beneficiary with special needs, it may be beneficial to direct the life insurance payout to the decedent’s trust rather than directly to the beneficiary. If the proceeds were to be paid directly to the beneficiary, there could certainly be negative consequences with respect to the beneficiary’s continued qualification for governmental benefits. On the other hand, if the proceeds were to be directed to the decedent’s trust, the special needs restrictions would enable the beneficiary to remain qualified for those benefits while still receiving the amount they would otherwise be entitled to under the life insurance policy.

Retirement Accounts and Special Needs Trusts

Similar to life insurance, most retirement accounts are payable upon death of the holder of the account. Typically, the account holder can specify beneficiaries for their retirement account. The same logic applies here – it would not make sense to direct the retirement account payout directly to the beneficiary with special needs. Rather, a better option may be to direct the payout to the trust. This will safeguard any beneficiary with special needs so they can continue to receive governmental benefits.

Do You Need a Special Needs Trust?

Every situation is unique. It may certainly be the case that your particular situation requires the use of a special needs trust. Our attorneys can help in making such a decision. Contact us today to learn more.