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Understanding the benefits of a special needs trust

| Jun 9, 2021 | Estate Planning

A surprising number of Ohio families have a family member who is disabled and cannot work.  These people are generally known as special needs individuals. For these families, planning for the future needs of the special needs person can be difficult and expensive.

Disabled individuals have a number of government sponsored programs such as Medicaid, Supplemental Security Income, and similar programs that offer financial assistance to individuals who cannot work. Unfortunately, many of these programs have financial limitations that prevent persons whose assets exceed those limits from applying for aid.

To solve this problem, the state of Ohio and the federal government have created an estate planning device that preserves eligibility for these programs for individuals whose assets exceed the program limits. The device is called a “special needs trust.”

The basics of a special needs trust

Trusts are legal entities that are widely used by individuals to preserve control over their assets while allowing family members to use the assets for specified purposes. A special needs trust (SNT) is used to permit parents or relatives and friends to contribute cash or other assets to provide for the disabled person’s food, shelter, health care and similar needs. Beneficiaries of SNTs can be either minor children or adults. In its simplest form, the assets in an SNT supplement, rather than replace, the financial assistance provided by one or more governmental assistance programs.

The document establishing an SNT must specify the purposes for which the trust’s assets may be spent. All SNTs have a trustee who manages the trust’s assets and ensures that payments to the beneficiary serve the purposes defined by the SNT law or regulation.

SNTs in Ohio

SNTs in Ohio are referred to as “payback trusts.” When the trust expires, usually because the beneficiary has died, the funds remaining in the trust must be paid to the state to reimburse it for payments made on behalf of the beneficiary.

As may be expected, drafting the documents to establish an SNT can be complex. Anyone who is interested in establishing an SNT may wish to consult an experienced estate planning lawyer for advice on the terms of the trust and the mechanics of setting up the trust.

 

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