When considering the costs associated with establishing a special needs trust, it’s important to keep in mind that these funds are typically smaller than the cost of a will. Still, they are an important piece of overall planning. After all, setting up a trust can make it easier for your children to grow up and prosper. However, you need to consider several factors before making a decision.
The cost of setting up a special needs trust varies widely depending on a number of factors. The first factor is the size of the assets to be held in the trust. The larger the assets, the higher the cost. For example, a special needs trust with assets worth $600,000 might cost between $2,000 and $3,000. However, the actual cost will depend on the individual circumstances of the client and their family.
A special needs trust allows the beneficiary to receive extra income after the person dies. First-party special needs trusts are irrevocable. However, third-party special needs trusts require that the funds are not owned by the beneficiary. Third-party pool trusts are also available. The nonprofit organization acting as the trustee oversees the funds and handles all the investment decisions and tax obligations. Most people opt for a pooled trust because of convenience.
A third-party special needs trust is the most common type. It’s funded by a third-party, rather than the beneficiary, and holds assets that belong to the beneficiary. They don’t have to pay back the money, and can also be revocable. In addition, these special needs trusts can be set up under a will or during the creator’s lifetime. A properly drafted special needs trust will provide for the disabled person’s special needs without negatively impacting their ability to qualify for government benefits.
There are two types of special needs trusts: individual and pooled. Individual trusts are used when a disabled beneficiary is eligible for government benefits. A pooled special needs trust is created when multiple beneficiaries set up the same trust. In a third-party special needs trust, the beneficiary and the donor both agree on the amount of the funds. The funds are managed by the third-party trust instead of Medicaid’s quick recovery rules when the beneficiary dies.
Another type of special needs trust is an asset-based trust. A third-party special needs trust uses the funds of a disabled person who is less than 65 years of age to provide for their disabled family member. The trust allows the disabled person to benefit from government benefits without risking their assets to creditors or lawsuit winners. A third-party special needs trust can be funded with a lawsuit settlement.