Understanding the benefits of a special needs trust

| May 24, 2021 | Estate Planning |

Many Georgia families have a member who suffers from one or more disabilities. These individuals frequently can rely on various government programs for essential needs, such as shelter, food and medical care. Many of these plans, however, have financial limits on eligibility. If a disabled person has income or assets that exceed the specified maximum, they cannot avail themselves of the benefits provided by these programs. In response, estate planners have evolved a significant estate planning tool known as a special needs trust (SNT). This device is intended to permit a disabled person to receive bequests or gifts from family members or third parties without adverse tax consequences.

The basics of a special needs trust

The principal requirement of an SNT is that the beneficiary be disabled as defined in the trust agreement. Next, the trust agreement must specify that the trust assets can only be used only for certain purposes, such as housing, health care, clothing and the like. Finally, the person establishing the trust must appoint a person or institution to serve as trustee. The trustee will have power to receive assets into the trust and to authorize appropriate expenditures on behalf of the beneficiary. Beneficiaries generally do not have the power to spend trust assets.

Three types of SNTs in Georgia

Georgia recognizes three types of SNTs. When the trust assets are provided by the beneficiary or a family member, the trust is called a first party trust. When the assets are contributed by a non-family member, the trust is called a third-party trust. The third type of SNT is a pooled trust, in which the assets of several eligible beneficiaries are combined in a single trust that is managed for the benefit of all members of the pooled trust. A pooled SNT permits the aggregation of assets to provide greater benefits for members than they could provide if their trust were free-standing.

Are you contemplating an SNT?

SNTs are valuable estate planning tools, but anyone contemplating establishing such a trust should contact an experienced estate planning attorney for advice. A knowledgeable lawyer can evaluate the circumstances of the proposed beneficiary and provide an opinion on the benefits that can be provided by an SNT. Most importantly, a capable estate planner can draft the necessary trust documents to create the trust in compliance with applicable state and federal laws.