Families support each other, through both the easy and the tough times. Because of this, it is understandable that a family would want to provide additional support to a loved one, especially if they require assistance because of a disability. Federal and state law allows family members to set up a Colorado special needs trust to preserve a disabled person’s eligibility for government benefits while still allowing them to receive financial help from their family. Creating a special needs trust can be complicated, but planning ahead can ensure the assets are there to provide for a loved one without risking the family’s financial future.
Typically, to receive government benefits like Medicaid and Supplemental Security Income (SSI), an individual must remain below a certain asset and income level. If a loved one were to provide assets to someone receiving these benefits, they could lose their eligibility. However, funds that are transferred into a special needs trust do not count for government benefit purposes, and thus will not jeopardize their eligibility.
There are two types of special needs trusts in Colorado: self-funded trusts and third-party created trusts. A self-funded trust can be established for any disabled person under 65 years old by their parent, grandparent, or guardian, or even created by the beneficiary himself. These trusts are established with assets belonging to the person with special needs, such as inheritances or personal injury settlements. A third-party trust is funded by someone other than the beneficiary, and does not include assets they own. A typical example of a third-party trust is a trust created for a disabled child by his parents during their lifetime, to enhance his standard of living while not endangering his eligibility for benefits. A parent could also create a third-party trust by including language in their will, which would then be funded upon the death of the parent.