A special needs trust is a crucial tool used by many families to ensure that their loved ones' needs are met, even when they are no longer around to assist. These unique trusts come with some very specific guidelines on what you can and cannot use the money to pay for, so be aware of the stipulations before funding one.
What can a special needs trust not pay for?
The answer may not be as straightforward as you think. This detailed guide will walk you through all of the details you need to know to help a loved one navigate their new trust without violating the agreement and causing a headache at the year’s end.
What is a Special Needs Trust?
When you have someone you care for who struggles with special needs of any kind, many loved ones will take extra precautions to ensure their long-term care. A special needs trust allows you to set money aside for their caregiving and supplement the support received through government programs.
Because the money is placed in a trust rather than a simple savings account, it means that they are still eligible for federal programs like Medicaid and Social Security Income (SSI), which are a lifeline to many. Federal programs can assist in daily care, but they will not cover all basic expenses or comforts that some deem a luxury.
A special needs trust supplements the income from other sources and protects it from the hands of creditors. But it will not cover all things that your loved one may need or want.
What Can a Special Needs Trust Pay For?
Food, shelter, and basic items should be covered under the purview of governmental programs like SSI. That means that your loved one should not have to dip into the trust for these items and should not be permitted to do so. Instead, the funds are there to help with other special needs in the day-to-day.
For example, a special needs trust can help them cover educational expenses, the cost of medical expenses not covered by Medicaid, and even transportation. For example, you may need to make modifications to your vehicle to make it safe for your condition. This can be paid for through the trust.
Other items a special needs trust can pay for include:
- Education, including tutoring and specialized training
- Assistive technology
- Home modifications for accessibility
- Personal care attendants and other caregiving services
- Recreation and entertainment, including travel expenses
- Electronics
- Services like financial management or legal consultations
If you are unsure whether an expense is deemed acceptable, it is best to consult with the person who drew the special needs trust up in the first place. This can avoid headaches that could limit a person’s ability to receive government benefits in the future.
What Can’t a Special Needs Trust Pay For?
Being on governmental assistance through Medicaid or SSI means that your basic living expenses should already be covered. The trust does not exist to cover the cost of groceries, dining out, rent or mortgage payments, property taxes, HOA dues, and utilities.
Keep in mind that you cannot use a trust to fund gifts for others, take the family on a trip to Vegas, or engage in illegal activities (bummer).
The general rule of thumb is that if you have government assistance to cover a subset of your bills and needs, then you should not withdraw money from the account to cover those expenses, or you run the risk of losing the benefit altogether.
Other Rules and Restrictions of a Special Needs Trust
Special needs trusts play a significant role in improving well-being and securing the future for your loved one if you can no longer be there for them. They are designed to improve the quality of life for the person supported beyond the benefits of government aid.
However, they do not come without risks and logistical headaches for some. The trust must be managed by a trustee, someone who understands the letter of the law and can look out for your loved one. Their responsibility is to directly pay the bill rather than entrusting the funds to the beneficiary to pay on their own.
They may also be required to keep up with routine compliance paperwork like annual reporting, tax filings, and more. All of this can be handled with the help of a legal professional well-versed in the legalities of trust planning.
Get Help for Your Special Needs Trust
A special needs trust has a clear benefit for someone who may not be able to provide a steady and high-quality life on their own. While government benefits help, there is a lot more that falls out of the purview of these programs. Special needs trusts allow them to keep public aid and manage their finances better.
Magellan can help you manage your money in a way that makes sense. We know the ins and outs of the special needs trust formation and maintenance. Let us help you make a strategic move for a loved one and form your own trust for their future today.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC.