When (and How) to create a Special Needs Trust

Oct 31, 2014 | Estate Planning

A Special Needs Trust is one that is designed to supplement the government benefits that your disabled child receives. Because of this, they are sometimes referred to as Supplemental Needs Trusts.

Once parents have decided to create a Supplemental Needs Trust for their son or daughter, they may wonder when to move forward. Since the trust will help serve as a source of financial support for your special-needs child as they age, the answer is simple: the sooner the better.

Life can be unpredictable, and since the trust is designed to help finance necessities that aren’t covered by governmental benefits, it’s best to begin the process as early as possible. The trust can continue to grow along with your child, and they can have a source of additional funding to draw from as they become adults.

Because the primary purpose of a Special Needs Trust is to enhance the quality of life of a person with a disability, trust funds can be used to pay for everything from therapies that aren’t covered by Medicaid to cleaning services to computers. Of course, the money can also be used for life experiences such as travel or helping to furnish a first apartment, or virtually anything your son or daughter may need as they grow up.

The first step is knowing how to set up the trust document. Most families will benefit from professional help in building a trust that’s tailored to their child’s unique needs. In a Special Needs Trust, the person setting up the trust (the “grantor”) is placing property in the hands of someone else to manage the trust (the “trustee”). Typically, Mom or Dad, as the grantor of a Special Needs Trust, serves as trustee, and then the second parent or another trusted person will be named the successor trustee. The grantor will serve as trustee of the funds until he or she is no longer able to physically control the trust, or chooses to resign, at which time the successor trustee will take over.

Each person involved as trustee is legally obligated to follow the terms of the trust document. For example, any property must always be used for the benefit of the person with special needs, who will be identified in the document as the “beneficiary.” The primary role of the trustee is knowing how to use the funds to support the beneficiary without jeopardizing any future government benefits — and that’s where a thorough understanding of eligibility and the law comes into play. The trustee will also be responsible for keeping accurate records and paying taxes, while keeping up to date with their child’s financial needs as they go through various stages of life.

The trust will take effect as soon as the document is signed and notarized. It will receive a special tax identification number from the IRS, and parents can begin adding funds to the trust by opening a bank account with a small deposit. The trust is then ready to be funded through parents’ wills, living trusts, beneficiary designations, or any other estate planning assets that could help support the beneficiary.

The average Special Needs Trust may ultimately include everything from real estate or a business to stocks, patents, or even jewelry. However, since the primary purpose of the trust is to maintain a source of money to help pay for necessities that aren’t provided by SSI or Medicaid, a Special Needs Trust will allow the trustee to sell tangible items, like cars, to raise cash.

As a parent, your goal is to have a good understanding of your child’s needs as they grow up, and to work with a lawyer who will help you utilize sound investment decisions when managing your son’s or daughter’s finances.

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