Supplemental needs trusts (SNTs) are an important tool for individuals with disabilities and their families to protect their assets and receive government benefits such as Medicaid and Supplemental Security Income (SSI). Here are some of the pros and cons of setting up a supplemental needs trust.
Why Set Up a Supplemental Needs Trust?
One of the primary benefits of setting up an SNT is that it allows an individual with a disability to receive government benefits while still maintaining access to additional financial resources to cover expenses that are not covered by those benefits. SNTs can be used to cover a wide range of expenses such as medical care, education, transportation, and entertainment. In addition, SNTs can help protect assets from creditors, lawsuits, and other potential liabilities.
Who is Eligible to Set Up a Supplemental Needs Trust?
Anyone who has a disability and is under the age of 65 is eligible to set up an SNT. Additionally, parents or legal guardians of a minor child with a disability can establish an SNT on the child’s behalf. It is important to note that the eligibility requirements for government benefits may vary depending on the type of disability and the specific benefit program.
Who Manages the Trust?
The trustee of an SNT is responsible for managing the trust assets and making distributions according to the terms of the trust. The trustee may be a family member, friend, or a professional trustee such as a bank or trust company. It is important to choose a trustee who has experience managing SNTs and who can act in the best interests of the beneficiary.
Differences for Single or Married Persons
There are some important differences in how SNTs are established and managed for single individuals versus married couples. For example, a single individual with a disability can establish an SNT using their own assets, while a married couple may need to use a portion of their joint assets to fund the trust. In addition, the terms of the SNT may be different for a single individual versus a married couple.
Tax Implications and Other Important Items
It is important to consider the tax implications of setting up an SNT. Income earned by the trust may be subject to income tax, and the trust may be required to file annual tax returns. In addition, the terms of the SNT must comply with all applicable state and federal laws.
All-in-all, supplemental needs trusts are an important tool for individuals with disabilities and their families to protect their assets and receive government benefits. It is important to consider the pros and cons of setting up an SNT and to work with a Fee-Only financial advisor, CPA, or attorney to ensure that the trust is established and managed properly. With the right planning and management, an SNT can help provide financial security and peace of mind for individuals with disabilities and their loved ones.
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