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Using a trust to help your loved one with special needs

On Behalf of | Jul 6, 2022 | Estate Administration

New Jersey parents who have loved ones with disabilities that leave them unable to work may want to consider creating a special needs trust for them as part of their estate planning tasks. An SNT allows assets to be held on behalf of an individual without affecting their access to such means-tested benefits as Medicaid and Supplemental Security Income from Social Security.

Benefits of an SNT

The SNT can be a useful estate planning tool. Because the money is the property of the trust, it is not included in the assets owned by the beneficiary. The trust can be used to pay for the person’s rent or other improvements to their quality of life. It can also take the burden off of siblings or others who might otherwise need to support the person after the death of parents.

State regulations

Each state has different regulations around establishing an SNT. The trust must be established before the individual reaches the age of 65. While there may be an initial setup fee of several thousands dollars, the cost of administering the trust annually is generally much lower. The person setting up the trust must also appoint a trustee who will manage it along with the distributions.

Tax implications

Distributing the trust’s full income annually means taxes can be avoided although there still must be a filing. If there is an investment income that is not distributed, there are four different potential tax rates.

Setting up an SNT can be complex, and it is also important to appoint the right person as trustee. However, the SNT can bring peace of mind to parents, grandparents and guardians of people who have special needs and can help ensure that they enjoy a reasonable quality of life even if family members are no longer around to provide for them.