Funding a special needs trust can be done in a number of ways.
You have a loved one with special needs.
Your loved one is dear to you and you provide essential support now, but you cannot ensure that you will always be around.
Death and even incapacity may be around the corner for you.
For this reason, you worked with an experienced estate planning attorney to create a special needs trust (SNT) for your loved one.
According to a recent TapInto article titled “Ways to Fund Special Needs Trusts,” the process is not complete.
You still need to “fund” your SNT.
How do you do this?
There are four main methods.
What are they?
You could contribute personal assets.
These assets could come from extended family or immediate family members.
With this approach, you provide an initial sum and family members may then augment the amount through inheritances, beneficiary designations, or outright gifts.
You could take out a permanent life insurance policy.
You could apply for a life insurance policy and designate the SNT as the beneficiary.
Consequently, this approach provides a certain sum at an uncertain time in exchange for certain set premium payment.
By making the trust the beneficiary, the payout would be left to the trust income tax-free when you die.
You could add payments from a lawsuit or settlement.
If you loved one acquired a disability due to the actions or negligence of another, any settlement should be used to fund the special needs trust.
You could utilize an inheritance.
Instead of providing an inheritance to your heir with special needs outright, you can fund the trust instead so as to preserve public assistance eligibility when it comes to means-tested programs.
With either a settlement or an inheritance, a large sum will enter the trust as one time.
It is vital to have a smart and trustworthy trustee over the SNT to properly provide support for the beneficiary and not endanger government benefits.
Do assets funding special needs trusts need to be liquid or cash?
You could also leave real estate, art, antiques, or securities through a last will or revocable living trust.
Whether you are funding a SNT or creating one, you should work with an experienced estate planning attorney to ensure that your plan aligns with your goals.
Reference: TapInto (February 2, 2020) “Ways to Fund Special Needs Trusts”