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Introduction
If you have a loved one with special needs, you understand the importance of planning for their future. One way to do this is by setting up a special needs trust. This type of trust allows you to leave assets to your loved one without impacting their eligibility for government benefits. However, there are rules regarding how the funds can be spent. In this article, we’ll explore the special needs trust spending rules in 2023.
What is a Special Needs Trust?
A special needs trust is a legal arrangement that allows you to leave assets to a loved one with a disability without disqualifying them from government benefits. The trust is managed by a trustee who is responsible for making sure the funds are used appropriately.
Types of Special Needs Trusts
There are two main types of special needs trusts: first-party and third-party trusts. A first-party trust is funded with the disabled person’s own assets, while a third-party trust is funded by someone else, such as a family member.
Why You Need a Special Needs Trust
If you leave assets directly to your loved one with special needs, it can impact their eligibility for government benefits like Medicaid and Supplemental Security Income (SSI). A special needs trust allows you to provide for your loved one without jeopardizing their benefits.
Spending Rules for Special Needs Trusts
When it comes to spending the funds in a special needs trust, there are strict rules that must be followed. These rules are designed to ensure that the funds are used for the benefit of the disabled person without impacting their eligibility for government benefits.
Allowable Expenses
The funds in a special needs trust can be used to pay for a wide range of expenses related to the beneficiary’s health, education, and well-being. These expenses may include:
- Medical and dental care
- Rehabilitation and therapy
- Education and training
- Transportation
- Assistive technology and devices
- Home modifications
- Recreation and entertainment
Prohibited Expenses
There are also expenses that cannot be paid for using funds from a special needs trust. These may include:
- Food and groceries
- Clothing and personal grooming items
- Shelter and rent
- Utilities
- Cash payments
Managing a Special Needs Trust
Managing a special needs trust can be complex, and it’s important to work with an experienced attorney and trustee. Some tips for managing a special needs trust include:
Choose the Right Trustee
The trustee is responsible for managing the funds in the trust and making sure they are used appropriately. It’s important to choose someone who is trustworthy, organized, and knowledgeable about special needs trusts.
Keep Good Records
The trustee should keep detailed records of all income and expenses related to the trust. This will help ensure that the funds are being used appropriately and can also help with tax reporting.
Communicate with Beneficiaries
It’s important to communicate with the beneficiary of the trust to understand their needs and wishes. This can help ensure that the funds are being used in a way that benefits them the most.
Conclusion
A special needs trust can provide peace of mind for families with loved ones with disabilities. However, it’s important to understand the rules regarding how the funds can be spent. By working with an experienced attorney and trustee, you can ensure that the funds are being used appropriately and in a way that benefits your loved one the most.
