A special needs trust is an invaluable tool to help a parent, family, or caregiver to ensure that a person with disabilities receives medical, legal, and other care that they need. But when the recipient has passed away and no longer needs that money, what do you want to happen to remaining funds? The decision is unique to each family or donor, but it can have ramifications to the family as well as others who manage disabilities.
So, what are some of the beneficiary choices that your family has? And what are the benefits of each choice? Here are some things to consider.
1. State Agencies
Generally, a special needs trust is designed to meet certain rules so as to avoid being included as an asset of the beneficiary. In addition to legitimately avoiding taxation, this also means that agencies who determine public benefits do not consider the trust in those calculations. So your loved one may be able to use benefits like Medicaid and state disability programs.
Because these agencies paid for certain care expenses, your trust may choose to — or be required to — pay back remaining funds to the agency. Many families find this a fair trade-off and also recognize that such agencies will continue to help others in similar situations.
The grantor of the trust may also choose to have remaining funds (a portion or the whole) donated to charitable organizations if no longer needed. Many organizations that aid and care for those with special needs are set up as nonprofit, charitable endeavors. They rely on the generosity of others. So if any group has assisted your family, you may want to show gratitude by donating what is left.
Helping a charity that works to improve the lives of others with special needs or to find treatments and cures could also create a lasting legacy for your loved one. Such donations are generally deductible to the trust and can be made either in private or with public recognition.
3. Other Children
An oversize share of many families’ resources must be devoted to the ongoing needs of a disabled child or family member. While your family is probably happy to make this sacrifice for a sibling, a child, a grandchild, or a relative, it can also be taxing on everyone. For this reason, some families opt to have remaining funds distributed to particular family members for personal reasons.
For example, if the disabled person had siblings, parents may want to leave remainder funds to the other siblings — especially if their potential inheritance had been used in the care of their family member. If the individual who passed away had children of their own, these funds might be viewed as a type of inheritance that should be appropriately distributed to them.
Those who gave money to the trust for the support of a loved one may want to know if they can receive the excess funds back when the trust is no longer necessary. This option could prompt others to be more generous when supporting the individual with special needs.
The answer may vary depending on how the trust was set up and the money was donated. In general, the remainder of a third-party trust that was funded with other people’s assets can usually be distributed to whomever was designated by the trust paperwork. This would, then, be a decision you would need to make when setting up the trust.
What is the right call for your family’s trust when funds are not needed any longer? This decision should be taken up as a family, and it reflects your individual goals, needs, and interests. For more help learning about the termination of a special needs trust and its funding, start with a visit to Life’s Plan Inc. today.