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How Your Loved Ones Can Benefit with a Special Needs Trust

If you have a family member or loved one who has a special need, you already know how important it is that they receive all the benefits available to them. Government benefits are an essential resource that provides for physical care, education, health care, and living expenses for many children and adults with special needs.

However, many government benefits have income and asset requirements. If a person inherits a large sum of money or assets, he or she could lose critical benefits. A North Carolina estate planning attorney can help you develop trusts and estate plans that protect your loved one’s right to governmental benefits while supplementing their income to ensure they continue to have a good quality of life.

What Is a Special Needs Trust in North Carolina?

A special needs trust is a special type of trust agreement. The beneficiary is a child or adult with special needs. The trust protects the person’s eligibility for governmental benefits by holding title to assets or income that would make the person ineligible for SSI, Medicaid, Medicare, and other benefits. 

Many families use special needs trusts to gift assets to their loved ones with special needs. They also use special needs trusts to hold inheritances that the person would usually receive if it were not for their special needs.

North Carolina Recognizes Three Types of Special Needs Trusts

There are three types of special needs trusts that a family might choose for a loved one. The primary factor in all three trusts is that the person with the special need (i.e., the beneficiary) does not have control or access to any of the funds or property of the trust. A trustee manages the trust assets and disburses funds for the beneficiary’s benefit according to the trust rules.

  • First-Party Special Needs Trust

A First-Part Special Needs Trust can be funded with the beneficiary’s assets. For example, if a person with special needs receives a personal injury settlement, the settlement funds can be used to create a First-Party Special Needs Trust. 

  • Third-Party Special Needs Trust

Third-Party Special Needs Trusts are set up and funded by someone other than the beneficiary. For example, a parent, family member, or friend can give assets and money to someone with special needs by creating a special needs trust. Third-Party trusts must be funded with assets that do not belong to the beneficiary. The beneficiary cannot contribute funds to a Third-Party trust.  Many parents establish third party special needs trusts for a special needs child to receive an inheritance. 

  • Pooled Special Needs Trust

A Pooled Special Needs Trust combines the funds from multiple beneficiaries into one trust. Each beneficiary receives only the funds in the account that belong to them. Non-profit organizations often use Pooled Trusts to provide for individuals with special needs while protecting their eligibility for government benefits. 

Special Rules for Disbursements From Special Needs Trusts 

Beneficiaries can use the funds in a special needs trust for various expenses. In many cases, a special needs trust allows the person to enjoy a better quality of life because their basic needs are met, and they have income for some extras.

However, the trustees of special needs trusts must be very careful when disbursing funds. They must ensure they do not violate the rules for governmental benefits. If they do, the beneficiary could become ineligible for government aid.

Call Us for a Free Consultation With a North Carolina Estate Planning Attorney 

Do you have questions about providing for a loved one with special needs? Contact us today to schedule a free consultation with one of our experienced North Carolina estate planning attorneys. We can help you develop various trusts and an estate plan to ensure your family member has the care they need.