Those who have serious physical and mental disabilities often find it virtually impossible to work as adults. Fortunately, the U.S. has a robust public benefits system, which provides financial resources to disabled individuals who cannot support themselves. These benefits are typically quite meager, though.
According to the U.S. Census Bureau, a disabled person can use public benefits to pay for housing, food and basic medical expenses. Still, most government programs require recipients to have very few assets and little or no income.
The problem with public benefits
Many recipients of means-tested benefits do not receive enough benefits to pay all their living expenses. Accepting monetary gifts is not an option, unfortunately. After all, because these gifts usually count as income, they may make recipients ineligible for government help.
The solution with special needs trusts
There is a solution to the problem with public benefits: Someone sets up a special needs trust and names the disabled person as its beneficiary. Because the trust holds money for the beneficiary’s benefit without transferring ownership to him or her, the beneficiary continues to be eligible for means-tested public benefits.
A bit of caution
It is important to recognize that special needs trusts cannot pay for every expense imaginable. To put a finer point on it, disbursements from the trust should not cover the same expense that public benefits do. Indeed, disbursements should only go to supplemental expenses, such as travel, education, entertainment or improvements.
Ultimately, it is the job of the special needs trustee to approve only trust disbursements that do not jeopardize the beneficiary’s eligibility for government help.