While programs like Medicaid provide essential medical care, they don’t always cover expenses that can improve your loved one’s quality of life. These include specialized therapies, adaptive equipment, educational support and recreation programs, among others.
A special needs trust can provide a way for your loved one to meet such expenses while preserving their eligibility for government benefits. That said, setting up a special needs trust requires careful planning. You must do everything right when creating this type of trust to ensure it serves its purpose. Below are some common pitfalls to avoid.
Improperly funding the trust
Drafting the trust document is only the first step. You also need to transfer assets to the trust properly. This may include retitling assets in the name of the trust and updating beneficiaries on life insurance and retirement accounts. Otherwise, you may have an empty trust or assets could pass directly to your loved one, which would put their government support at risk.
Not naming a suitable trustee or a successor trustee
The trustee will be in charge of administering the trust assets, and whoever you choose to act in this role could determine whether everything goes to plan. An ineffective trustee can mismanage assets or make decisions that don’t align with your loved one’s best interests.
It’s equally important to name a successor trustee in case your initial choice is unable or unwilling to serve. This ensures the trust continues to operate smoothly should something unexpected happen.
Overly restrictive or vague instructions
Don’t be too rigid when specifying how trust funds can be used. Overly strict rules may prevent your loved one from enjoying benefits that could enhance their quality of life. On the other hand, being too vague can lead to bad trustee decisions, confusion and even unnecessary disputes.
Disregarding qualified support
Going it alone when setting up a special needs trust can lead to mistakes that could be difficult to fix, and with so much at stake, you shouldn’t overlook the value of professional guidance. It can greatly help with legal compliance and ensuring the trust meets your loved one’s unique needs.
