Creating And Protecting Your Legacy

Reasons a special needs trust should be irrevocable

On Behalf of | Jun 6, 2024 | Elder Law and Medicaid Planning |

If you have an aging parent suffering from mental incapacity, you might consider creating a special needs trust to pay for certain expenses for your loved one. This kind of trust may give you peace of mind that you can provide for your parent, though you should be sure to create the trust in a proper form.

A general rule is that a special needs trust should be irrevocable. While a revocable trust gives the grantor control over the trust and its property, an irrevocable trust is one in which the assets belong to the trust, allowing the trust to protect the assets and the right of the beneficiary to receive them.

Eligibility for government benefits

A special needs trust allows your loved one to remain eligible for means-tested government benefits like Medicaid and Supplemental Security Income. These programs have strict resource limits. If the trust is revocable and your relative created the trust, its assets could be included as your loved one’s resources and could result in benefit disqualification.

An irrevocable trust, however, does not count its assets against your loved one for eligibility purposes. The funds remain available to supplement government benefits without disrupting that critical support.

Asset protection

As an added benefit, an irrevocable trust can act as a shield against parties who might sue your parent for money. This can include creditors or other parties who believe your relative owes them a certain amount.

After placing assets in an irrevocable trust, the person creating the trust relinquishes control of the assets to the trust itself. So a creditor cannot claim the assets since they no longer belong to you or your relative if your parent was the grantor.

A special needs trust can be effective, but you should take care that it harmonizes well with any other benefits your parent receives to prevent an unnecessary loss of money or other forms of assistance. Creating it as an irrevocable trust may head off potential legal conflicts and keep your plans for your relative on track.