Protecting assets through a special needs trust

by | Jun 15, 2018 | Firm News |

Many people in New Jersey, including the elderly and special needs individuals, rely on government benefits to make ends meet financially. However, there is a limit on the monetary amount of assets a person can have in order to qualify for certain government benefits. People may fear that they must impoverish themselves in order to qualify for benefits. However, through the execution of a special needs trust, certain assets will be excluded when a person applies for benefits.

In general, there are two different types of special needs trusts. One is a first-party special needs trust. This type of trust is executed by a person prior to becoming disabled or after the person qualifies for government benefits. However, the more common type of special needs trust is a third-party trust. A third-party trust is executed by a family, with the trust beneficiary being the special-needs child.

There are also options besides special needs trusts families may want to consider. One is establishing a ABLE account. These accounts, permitted by federal law but managed by the individual states can allow a person to save up to $100,000 without having these funds count toward means-testing when it comes to applying for government benefits. Or, a family might consider executing a pooled-asset trust. In this type of trust, the assets of several beneficiaries are combined into one “pool.” This may be useful for those who do not have a significant amount of assets, but have enough assets that would preclude them from receiving government benefits.

As this shows, people have options with regards to protecting their assets while still allowing them to qualify for government benefits. Special needs trusts, ABLE accounts and pool-asset trusts can provide peace of mind to individuals and their families that are in need of government benefits. However, such trusts can be complex. It is important that all legal formalities are met when drafting the document, and that the trusts or accounts are properly funded. If these elements are lacking, it is possible that these estate planning documents will not achieve the purpose they are intended to. Therefore, those seeking to protect their assets while still qualifying for government benefits will want to make sure they seek the help necessary to properly achieve their goals.