Learn the Basics About Special Needs Trusts Colorado
A special needs trust in Colorado can provide financial support to a person with disabilities.
Learn more about this and find out if they’re right for you.
What is a Special Needs Trust?
Disabled individuals or incapacitated persons are generally entitled to government benefits such as Medicaid and Supplemental Security Income (SSI). However, the funds from these benefits must be used for the purpose stipulated by law which is often limited. Funds to take of the individual’s other needs must be gotten from other sources that the disabled person might be unable to provide.
Considering the circumstances, parents who have a disabled child and children of an elderly parent may wish to step in and provide for their loved ones. However, outrightly supplementing the income of a disabled person might affect the person’s eligibility for government benefits. As stipulated by Colorado law, the proper way to help such persons is to create a special needs trust.
A special needs trust, also known as a disability trust, is a legal instrument that allows a disabled person receives financial assistance without losing his or her eligibility for public benefits. According to Colorado State law, the beneficiary of a special needs trust must be a disabled person or one who has been declared incapacitated by a Judge.
Special needs trusts are primarily used to finance things that, although they might improve the beneficiary’s quality of life, are not considered necessities. Examples of these include vacations, books, cars, and physical therapy. Special needs trusts do not cover things like rent, as government benefits should fund them.
If you want more details about the uses of a special needs trust, you could contact a special needs trust attorney to enlighten you.
Benefits of a Special Needs Trust
Setting up a special needs trust on behalf of a loved one has several advantages as follows;
- Funds that are part of a special needs trust are not computed for government aid purposes, which means that the beneficiary’s access to public benefits is not jeopardized.
- A special needs trust preserves and fulfill the intention of the creator. Funds allocated to the trust can only be used in the manner spelled out in the trust instrument. This helps to prevent the dissipation of the assets on frivolities.
- The assets which form the special needs trust are protected by law from creditors or other people who might otherwise be entitled to recover any form of payment or assets from the grantor or beneficiary. This way, the beneficiary’s needs are taken care of regardless of the grantor’s future financial situation.
Who Can Create Special Needs Trusts?
The person who creates or establishes a special needs trust is known by several names, including settlor, grantor, trustor, and donor. By federal and state law, special needs trusts must be made with disabled or incapacitated persons as beneficiaries.
In a nutshell, special needs trusts can be created by anyone who wishes to help a loved one or family member, such as an elderly parent, ailing spouse, or a disabled child.
Types of Special Needs Trusts
There are two forms of special needs trusts as follows;
Self-settled special needs trusts: A self-settled trust, also known as a first-party trust, is one in which the disabled beneficiary owns the trust assets. The grantor of a self-settled special needs trust may be the disabled individual, parents, or grandparents. The trust may also be created under a court order. The funds for such trusts may also be obtained from personal injury settlements awarded to the disabled person where the disability occurred due to the injury in question.
Although special needs trusts do not ordinarily affect a beneficiary’s eligibility for public benefits, self-settled trusts are usually subject to a Medicaid payback clause. If the beneficiary dies, any funds remaining shall be paid to any state that provided Medicaid to the beneficiary in their lifetime.
Third-party trust: Most special needs trusts occur in this form. A third party funds the trust, usually the beneficiary’s loved ones. This form of trust is not subject to a Medicaid repayment clause.
How to Create a Valid Special Needs Trust
Technically anyone can create a special needs trust. However, the grantor must fulfill several legal requirements to create a valid special needs trust instrument. Therefore it would be best to hire a special needs trust lawyer to guide you if you have such intentions.
Your lawyer can offer you legal advice on several issues, including your choice of trustee and whether to establish a revocable living trust. In this instance, establishing an attorney-client relationship would be appropriate.
Consult a special needs trust lawyer today if you would like to create a special needs trust to help someone you love.
Who Can be a Special Needs Trustee?
A special needs trustee can be an individual such as a family member or friend. It could also be an organization whose business involves running a pooled trust.
The sole discretion of the grantor determines the choice of a trustee in a special needs trust. However, professional legal guidance is required to avoid pitfalls that might invalidate the trust. Colorado law, for instance, does not allow a trust beneficiary to be the sole trustee. Doing otherwise might make the trust unenforceable.
What Happens to Special Needs Trusts After the Beneficiary Dies?
The fate of a special needs trust after the beneficiary dies is dependent on the type of trust and the provisions of the trust instrument.
Trust monies leftover in a self-settled trust are used to repay the cost of any government-sponsored medical assistance or Medicaid expenses that the beneficiary received in their lifetime. The remainder may then be distributed according to the terms of the trust.
The leftover trust funds are applied according to the trust’s instructions with third-party trusts. Hence it is important to always leave instructions that would be activated upon the beneficiary’s death while creating a special needs trust.
Funding a Special Needs Trust
A special needs trust is funded through a combination of cash and assets. The funds may come from a personal injury settlement or gifts from family members and loved ones. The assets included in the special needs trust may also include investments, real estate, cars, and other valuable property. Through the special needs trust, parents can also make their disabled child a beneficiary of their life insurance policy.
Creating special needs trusts to provide for a disabled loved one is a noble act that could significantly improve their quality of life. It supplements government benefits and ensures that their needs are met, which gives them some form of stability.
However, the legalities involved in creating such a trust make it crucial to seek professional legal help. If this is your situation, you could contact a trusted special needs trust lawyer to help you while you help your dear one.
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