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Special Needs Trusts: Pros and Cons of Setting One Up Now vs. Including One in Your Will

Posted by Daniel J. Eccher Esq. | Oct 11, 2021 | 0 Comments

What will happen to a mentally or physically disabled loved one when you're gone? Who will support them? Depending on their situation, the options for securing their future include setting up a supplemental care or special needs trust (SNT) or an ABLE (Achieving a Better Life Experience) account. In some cases, you can do both. Parents, grandparents, or anyone else with the legal authority to support someone with a disability may create them.

Apart from ABLE accounts, the two types of special needs trusts are "testamentary" or "stand-alone" trusts (also known as "inter vivos," Latin for "while alive"). Generally part of a will, testamentary trusts go into effect after the grantor, the creator of the trust, dies. However, a stand-alone trust -- made outside of a will -- becomes valid immediately. The terms of a trust can be revocable or changed, or remain fixed or irrevocable. After the creator of a will dies, a testamentary SNT becomes irrevocable.

Depending on your situation, one type of SNT may be better for meeting your goals than the other. For example, if a disabled person has (or is soon to receive) funds that exceed the asset limits of aid programs such as SSI (Supplemental Security Income) and Medicaid, a carefully written SNT can let them keep getting those benefits. 

Stand-Alone vs. Testamentary SNTs

A stand-alone SNT can work better than a trust within a will because you have more control over the assets during your lifetime. Unlike an inheritance granted through a will, the funds aren't subject to probate. A stand-alone SNT may include the person's assets and a beneficiary designation on a life insurance policy or a bank or retirement account. The money can also help the beneficiary now. A stand-alone SNT may include income from more than one source, too. And the provisions of the stand-alone trust remain private compared to a will, which is a public document. A stand-alone SNT may also be a good option for those who want to protect assets from long-term care costs. Sometimes a testamentary SNT is a better choice. 

When to Consider a Testamentary SNT

If the person with a disability has no income or assets, it can make sense to include a SNT in a will, especially if one person wants to leave them an inheritance without naming them as a beneficiary on insurance or financial accounts. In doing so, it's important to remember that the grantor of the testamentary SNT needs to keep the funds intended for the trust for their own use during their lifetime. In another scenario, if the disabled person receives (or will receive) Medicaid (locally known as MaineCare) benefits, including a SNT in a will may help them comply with eligibility rules so the assistance can continue. Updating the wills of clients whose spouses have gone on MaineCare coverage of long-term care to include a SNT for the benefit of the spouse in long-term care is routine at our firm. 

Creating a SNT or using other financial options can help you rest assured that someone with a disability will have a decent quality of life. If you're not sure which choice will work best for you, contact us online or call (207) 377-3966. We would be happy to advise you on the right solution for you and your loved one's needs. 

About the Author

Daniel J. Eccher Esq.

Daniel J. Eccher, Esq. is the Managing Shareholder at Levey, Wagley, Putman & Eccher, P.A., in Winthrop, Maine. Dan's favorite problem to solve is helping clients figure out how to afford long-term care while having something left for their family.

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