Planning for Your Child with Special Needs: Why Special Needs Trusts are Important
Planning for their child’s future is a top priority for any parent. For parents of a child with special needs, however, this responsibility becomes far more complicated and requires careful consideration and expert guidance. For these parents, a Special Needs Trust (SNT) may be one of the most critical tools in your toolbox. This article will provide you with the basic information you need to understand Special Needs Trusts and how they can help secure your child’s financial future.
What is a Special Needs Trust?
A Special Needs Trust is a legal document that can preserve your child’s eligibility for needs-based government services (think Medicaid and Supplemental Security Income / SSI). A Special Needs trust can hold a variety of assets such as cash, stocks, bonds, real estate, and personal property. Any person with a disability under the age of 65 may place assets (or have them placed) in an SNT to establish or maintain Medicaid eligibility. By placing these assets in a trust, you can ensure your child has the financial resources they need for the future.
Protecting Your Child’s Government Benefits
Protecting your child’s eligibility for government benefits is one of the primary reasons for establishing an SNT. Because SSI and Medicaid are means-tested programs, they have strict income and asset limits. If you or another relative were to leave your child an inheritance, such a gift could disqualify your child from those benefits. Likewise, a financial settlement from a personal injury lawsuit could have the same effect. By creating a Special Needs Trust, you can shield those assets from counting toward such program eligibility.
- First-Party Special Needs Trust: This type of trust is funded with your child’s own assets. Those assets typically come from a personal injury settlement, an inheritance, or savings. You, your child’s grandparents or legal guardians, or even a court, can establish an SNT for your child. If funds remain in the trust at the time of your child’s death, the law requires they be used to repay Medicaid for any benefits your child has received.
- Third-Party Special Needs Trust: Parents or grandparents usually fund these trusts. Those funds need not be repaid to Medicaid upon your child’s death. Any remaining assets may be distributed to family members or other beneficiaries.
- Pooled Special Needs Trust: The law requires that charities create pooled special needs trusts which act like a savings and loan association. You can open a sub-account in this type of trust and maintain a separate account for your child. The non-profit charity manages the entire pool of assets. For people with smaller funds, a Pooled SNT could be a cost-effective option.
Key Steps to Creating a Special Needs Trust
- Consult with an Attorney: First and foremost, find an estates and trusts attorney who is experienced in working with special needs planning. When securing your child’s future, you want to make sure that the SNT is properly drafted to comply with both state and federal law.
- Select a Trustee: Your attorney can guide you in choosing someone to manage your child’s trust. You can choose either an individual or an organization. The most important factors to consider are:
- Trustworthiness
- Ability to handle financial matters
- Their understanding of your child’s needs, and
- Their willingness to serve in this role.
- Fund the Trust: How will you fund your child’s SNT? What assets are available to put into the trust? You can use cash, investments, real estate, life insurance policies, stocks, bonds, and other assets. Your attorney or a financial planner working with your attorney can assist you in developing a comprehensive funding strategy.
- Communicate Your Plan: Once you’ve developed the plan for your child’s future, communicate it to all important players in your child’s circle. That may include grandparents, aunts and uncles, godparents, caregivers, medical professionals, and others. Explain in clear language that you’ve created a trust, and what is the purpose of that trust. That will help ensure that the plans you have for your child will roll out smoothly, even if you aren’t available to do so.
Conclusion
Planning for your child’s future requires thoughtful deliberation and expert guidance. Special Needs Trusts can be an essential tool in your planning process because they offer a path to financial security without risking your child’s access to indispensable government benefits. Working with an attorney to create a Special Needs Trust is one of the smartest ways you can protect your child’s financial future while giving yourself peace of mind. If you have a child with special needs, contact an estates and trusts attorney today to discuss your options. It may be the most important thing you’ve ever done for your child.