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What is a Special Needs Trust?

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Trusts can be an effective way to protect your assets while also ensuring that those assets wind up where you intend while avoiding probate. At its most basic, a trust creates a legal relationship between parties in which the assets of the trust are held by one party for the benefit of another. The parties to a standard trust are known as the settler (or grantor), the trustee, and the beneficiary or beneficiaries. Each party has a particular role, detailed below:

  • The settler/grantor provides the assets to be held in trust. Trust assets can be bank accounts, real property, investments, or even personal property.
  • The trustee is the party who hold the property for the benefit of those who are intended to benefit from the trust. A trustee owes duties, some fiduciary, to the beneficiaries of the trust.
  • The beneficiary or beneficiaries of the trust are the party or parties who are entitled to the benefit of the trust assets. Beneficiaries can be companies or natural persons.
While trusts have existed for centuries at common law, case law and statutes have created new, specialized trusts intended to fulfill specific needs. One type of these specialized trusts is known as a special needs trust, sometimes also known as a supplemental needs trust. Special needs trusts exist to provide for the financial needs of a disabled family member or loved one while not affected their eligibility for supplemental security income and Medicaid benefits.  Authorized by federal law in 42 USC § 1396p(d)(4)(A), there are three distinct types of special needs trusts:
  • A Disabled Individual's Special Needs Trust - These trusts are created for the benefit of people under the age of 65 who are disabled, and are established by the parent, grandparent, or legal guardian of the individual, or by a court. By placing assets in this type of trust, they are not counted against the beneficiary's assets for the purposes of federal benefit eligibility.
  • A "Miller" Trust - Miller trusts are used to ensure that people with income can still be eligible for long-term assistance under Medicaid.
  • Pooled Income Special Needs Trust - These trusts allow disabled people to be the beneficiary of a trust account managed by a non-profit association. The trust account may be created by a parent, grandparent, or guardian of a disabled individual, by a court, or by the disabled individual.
Creating a valid special needs trust can be a legally complicated matter, and it is advisable to do so with the assistance of an experienced Illinois estate planning attorney. In order to schedule a consultation regarding setting up a special needs trust or any other estate planning matter, call Stock, Carlson, Flynn, and McGrath, LLC at 630-665-2500 today.
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