Establishing a bypass trust, also known as a special needs trust, is a powerful tool for providing for a disabled sibling without jeopardizing their eligibility for crucial government benefits like Supplemental Security Income (SSI) and Medicaid. These benefits are needs-based, meaning even a small amount of assets in the disabled individual’s name can disqualify them. A bypass trust allows assets to be held for their benefit without being considered available resources for eligibility purposes. Roughly 1 in 5 Americans live with some form of disability, making thoughtful planning essential for their long-term care and financial security. The trust functions by being carefully structured to ensure the beneficiary does not have direct ownership or control over the assets.
What assets can I put into a special needs trust?
A wide range of assets can be transferred into a special needs trust, including cash, stocks, bonds, real estate, and even life insurance policies. However, careful consideration must be given to the source of those assets. Assets inherited or received as a gift *after* the beneficiary turns 65 are generally counted towards SSI eligibility, even within a special needs trust. However, assets received *before* age 65, or as the result of a personal injury settlement, are typically exempt. According to the Social Security Administration, in 2023, approximately 8.5 million people received SSI benefits, highlighting the importance of preserving eligibility. “It’s not about *giving* them money; it’s about ensuring they have access to the resources they need *without* losing the assistance they rely on,” explains Ted Cook, an Estate Planning Attorney in San Diego.
What happens if I don’t set up a trust correctly?
I remember Mrs. Davison, a kind woman who came to us after her brother, Michael, with Down syndrome, unexpectedly received a small inheritance. He’d been receiving SSI for years, and she was terrified the funds would disqualify him. She’d simply deposited the check into his savings account, thinking she was doing the right thing. Within weeks, Michael’s benefits were suspended, and she was scrambling to figure out how to cover his care. It was a difficult and stressful situation, easily avoided with proactive planning. It underscored the critical importance of not only establishing a trust but also understanding the specific rules surrounding asset transfers. According to a recent study by the National Disability Rights Network, improper trust administration leads to benefit loss for an estimated 15% of beneficiaries annually.
How do I ensure the trust is properly administered?
Proper administration is crucial to maintaining eligibility and ensuring the trust fulfills its purpose. This includes keeping meticulous records of all income and expenses, filing necessary tax returns, and adhering to the terms of the trust document. The trustee has a fiduciary duty to act in the best interests of the beneficiary, and failure to do so can result in legal repercussions. It’s often wise to appoint a successor trustee as well, to ensure continuity of care should the initial trustee become unable to serve. Ted Cook often advises clients to select a professional trustee, particularly if the trust assets are substantial or the beneficiary’s needs are complex. “A professional trustee brings objectivity, expertise, and a long-term perspective to the administration of the trust,” he notes.
What was the outcome when a family did things right?
Old Man Hemmings was a salt of the earth kind of fellow, a retired fisherman. He called us up because he wanted to ensure his daughter, Sarah, who had cerebral palsy, would be taken care of after he was gone. He’d diligently saved over the years, wanting to leave her something more than just what she’d receive through government programs. We worked together to establish a bypass trust and funded it with his savings. When he passed, Sarah continued to receive her SSI and Medicaid benefits without interruption. The trust funds were used to supplement her care, providing her with enrichment activities, specialized therapies, and a comfortable lifestyle. Seeing the peace of mind this brought his family, knowing his daughter would be well-cared for, was deeply rewarding. It showed that with careful planning, it’s possible to provide for a loved one with disabilities without jeopardizing their crucial benefits.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
Map To Point Loma Estate Planning Law, APC, an estate planning attorney near me: https://maps.app.goo.gl/JiHkjNg9VFGA44tf9
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