Disabilities affect people in any number of ways, and someone who needs extensive physical care may still be well-suited to take care of financial matters. Such matters can be tricky when dealing with a disability, as many of the programs that offer assistance are only available to those who fall below a certain income threshold.
What a special needs trust does
One solution is to place assets in a special needs trust. The trustee then distributes funds directly to agencies or companies providing necessary services, so they do not count as income. The trust’s beneficiary can still receive an income from the trust assets, as long as it does not exceed the maximum allowed by benefit programs.
Past limitations of special needs trusts
The Omnibus Budget Reconciliation Act of 1993 stated that a person with disabilities under 65 years old could only have a special needs trust if a parent, grandparent, court or guardian set it up for him or her. This limitation caused hardship for a great number of individuals who had the mental capacity to set up the trust on their own. Therefore, in December of 2016, the Special Needs Trust Fairness Act became law to correct the issue.
Current solutions for people with disabilities
Now, a third party is not necessary for a person with assets and the ability to manage them. Here are some examples of when a person with disabilities may need to set up a trust:
- A person with a disability turns 18 and is no longer under the legal guardianship of a parent.
- Someone is the victim of a serious car accident and becomes paralyzed, then wins a large personal injury lawsuit against the person responsible.
- An adult child is a beneficiary of a large life insurance policy when the parent dies.
Regardless of the circumstances that leave a mentally competent adult with disabilities unable to qualify for essential government assistance and benefits, the first party special needs trust may be the answer.