Special Needs Trusts and Retirement Accounts

Posted on: April 23rd, 2018 by Mark R. Friedman

A special needs trust is important if you have a child or grandchild, or another person in your life, with disabilities who you want to leave property to when you pass away.

A lot of people with disabilities receive disability benefits, which are often valuable and important. Some of these disability benefits programs are means-tested, which means that you must have limited assets and income (means) in order to be eligible for these programs.

SSI and a number of Medicaid programs have asset limits of $2,000. That means a person with disabilities must maintain assets under that figure to remain eligible for these benefits.

So if you leave property to your child with disabilities, you may be disqualifying her from disability benefits on which she relies.

Instead, those assets can be left to a special needs trust, a legal instrument in which the money is held and managed by someone other than your child (the trustee). The trustee controls the money, but can only spend it for the benefit of your child (the beneficiary). If the trust is created and administered correctly, the property can be used to benefit your child while your child remains eligible for disability benefits.

That said, a special needs trust only works if the property you want to leave to your child goes to the trust instead. For much of your property, this can be accomplished with your will. But as we wrote last week, some of your property may pass outside your will by law – life insurance with a designated beneficiary, houses owned by joint tenants with a right of survivorship, bank accounts with a payable on death beneficiary.

One type of property that often passes by law is retirement accounts. If you designate a joint beneficiary, the account will typically pass outside your will to that beneficiary. And because of favorable tax treatment, there is usually good reason to designate a beneficiary on your retirement accounts.

That designated beneficiary can be the trustees of your child’s special needs trust.

The beneficiary designations have to be completed in a particular way in order to achieve this. FriedmanLaw can work with the custodian of your retirement account (Vanguard, Fidelity, etc.) to set up beneficiary designations leaving the account to the special needs trust.

If you’re interested in learning more, please call or email FriedmanLaw today.

As this website provides general information and isn’t tailored to your particular situation, it doesn’t constitute legal advice and may not take into account rules and exceptions that affect you. Although updated from time to time, this website may not take account of recent legal developments or differences in laws from state to state. For safety sake, obtain individual legal advice before you act! You assume all risk of acting on information contained in this website. This website doesn’t constitute legal advice, and no attorney-client relationship exists unless FriedmanLaw and you execute a written engagement agreement. Please contact us at 908-704-1900 to discuss engaging FriedmanLaw to help resolve your legal concerns.
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