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What are the limitations of a special needs trust?

Setting up a special needs trust is virtually a necessity for parents of children with special needs. Having one in place means that your child will benefit from solid financial resources, be able to afford the level of care that he or she deserves and still qualify for valuable government benefits.

Even parents who don't have much in the way of financial resources can set up a special needs trust that will be funded with life insurance proceeds in the event of their deaths. Therefore, this useful estate planning tool should be appropriate for nearly anyone who needs it.

There are, however, some limitations that the makers of special needs trusts should keep in mind. For example, the funds inside the special needs trust can only be spent on certain things. Here is what the trust money can be spent on:

  • Rehabilitation expenses
  • Computer equipment
  • Medical and dental care that isn't provided by government benefits
  • Transportation expenses
  • Home health equipment
  • Education costs

Here are a few things that the special needs trust funds cannot be used for:

  • Home insurance costs
  • Utility fees
  • Cash transfers to the child with special needs
  • Food costs
  • Housing costs
  • Property tax payments

Using the funds in a special needs trust in the wrong way means that the trustee will have violated the terms of the trust. Also, planning the trust in the wrong way and allowing it to be used for the wrong things could serve to invalidate the trust, which is something that special needs parents will want to avoid. Make sure to draft the terms of your special needs trust carefully to ensure that it's a valid document and it conforms to the law.

Source: Pacer Center, "The Special Needs Trust," accessed March 07, 2018

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