What Are the Common Mistakes Made When Setting Up a Special Needs/Supplemental Needs Trust?
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Questions And Answers
Yes, you should provide instructions for how the trust will be utilized. This is one of the most common mistakes made when setting up a special needs/supplemental needs trust. Oftentimes, people do not leave instructions for how the trust will be used, which only creates confusion.
Yes, procrastination is one of the most common mistakes made when setting up a special needs/supplemental needs trust. By procrastinating, the individual with disabilities goes longer and longer without any safety net in place to protect them.
Another common mistake made when setting up a special needs/supplemental needs trust is not understanding who the trust can be made for. Oftentimes, people think that the trust can only be made for minors. This is not true.
No, you may not. This is a common mistake made when setting up a special needs/supplemental needs trust. Once a person reaches the age of 65, they are no longer eligible for a special needs trust.
Yes, this is a common mistake. The amount of money given per month to the beneficiary must not exceed $2,000 if the individual wishes to remain eligible for government benefits. This distribution of funds is at the discretion of the trustee. However, by requiring mandatory distributions of money in the trust, it is stripping of the trustee of this power. Additionally, it could affect the government benefits as these mandatory distributions would be considered unearned income.
Circumstances change and the needs of the trust can change as well. It is important to review the special needs/supplemental trust every few years.
Yes. Many times, people do not properly fund the special needs/supplemental trust. When the trust is not properly funded then the individual for which it is made is not being properly taken care of.
No, you should not make the special needs/supplemental needs trust very restrictive. This is a common mistake made when setting up a special needs/supplemental needs trust. Sometimes parents think they need to make the trust very restrictive to protect the disabled individual. However, having overly complicated language in the trust can have adverse effects.
Yes, this is a common mistake. You do not want to choose someone you cannot trust or who does not have knowledge of how a trust works. It is important you take your time and choose one who will honor your wishes.
Yes, and you should. This is a common mistake. Many of the common mistakes made when setting up a special needs trust can be avoided by using an attorney who has the experience and knowledge to avoid them.
It is advisable to begin the process of creating a trust before the child turns eighteen. However, this does not mean you can draft it and forget about it. It needs to reflect the child’s current state. This is a common mistake. Parents think that once they draft the trust that it is done, but this is not the case.
Yes, this is a common mistake. Oftentimes, parents think they can draft a trust by themselves using online resources as their guide. It is not advisable to draft the trust yourself. This can create myriad other mistakes. Using an estate planning attorney, or similar attorney, to help is crucial in avoiding mistakes.
This is a common mistake when setting up a special needs/supplemental needs trust. You have appointed a trustee you trust, but you have not adequately informed them of their duties. This means that the trust will not be efficiently carried out.
Yes. A trust can either be “revocable” or “irrevocable.” It is important to make the trust “irrevocable” because it benefits the estate and the taxes thereof. Many people fail to label their trust as irrevocable.
Yes. Many people create a trust to maintain eligibility for government benefits, such as Medicaid. However, this should not be the only goal of the trust. The trust is to protect and provide for the disabled individual. It is about giving comfort to your loved one.
Not notifying other family members of the trust of a loved one is a common mistake made when setting up a special needs/supplemental need trust. By not informing them of the trust, they may give financial gifts and inheritances that would negatively affect government benefits.
A Crummey powers clause is a mistake because it gives the beneficiary the right of withdrawal, which in turn negatively affects the eligibility of the individual for government benefits.
A common mistake made when setting up a special needs/supplemental needs trust is not recognizing that there are different types of trusts. Parents may choose the first one they see, which does not benefit the child with disabilities. The three types of trusts are: Self-Settled, Third-Party, and Pooled Trusts.
No. This is a common mistake made when setting up a special needs/supplemental needs trust. A third-party has no requirement for a payback provision and including one could have serious ramifications for whoever drafted the trust, such as malpractice. Do not include a payback provision in a third-party trust.
Yes, this is a common mistake. People are sometimes advised to disinherit their children to protect their government benefits, but this should not be done. Having a third-party trust is the best way to provide for your child while still protecting their government benefits.