Proper estate planning is crucial for parents of children with special needs. I have assisted parents and grandparents prepare special needs trusts to ensure their child or grandchild is protected financially and cared for when they are no longer able to do so. Having worked with several families with special needs, I know how worrisome the thought is of what will happen to their child when they are no longer alive to care for them. It’s scary for parents in this situation.
For parents of special needs children, one of the first things that must be decided is, who will take care of your special needs child, even when that child is an adult, upon your passing. These are few of the considerations when choosing a guardian:
Considerations when choosing a Guardian:
- Age of child
- Age of potential guardian
- Activity level of children
- Activity level of guardian
- Your child’s special needs, dietary restrictions, his or her physical disabilities, intellectual disabilities, and/or developmental disabilities, and how much does your potential guardian know about the care necessary for your child
- Morals and values you want your child to have
- Value of education, sports, religion you have and does the potential guardian share those same values
- Location of potential guardian (will your child have to move from school, friends, etc.)
This isn’t an exhaustive list of considerations. Depending on your child’s needs, you will need to ensure that the person you name as Guardian is willing and able to take on the responsibility of caring for all the needs of your child. You must have several conversations with your Guardian so that he or she knows the medical and health needs of your child, and that they agree to continue doing all necessary to give your child the same level of love and care you provide.
What is a Special Needs Trust?
A special needs trust (SNT), also known as a supplemental needs trust or disability trust, is a legal instrument created to manage and protect assets for the benefit of an individual with disabilities. The primary purpose of a special needs trust is to provide financial support and enhance the quality of life for a person with special needs without jeopardizing their eligibility for government benefits, such as Supplemental Security Income (SSI) and Medicaid. Special needs trusts must adhere to specific legal requirements, and the laws governing them may vary by jurisdiction. It is crucial to consult with an attorney experienced in disability and estate planning to create a trust that meets all legal and regulatory standards.
Special Needs Trust Basic Information
The trust is established for the benefit of an individual with a disability, who is often referred to as the beneficiary. The beneficiary may have physical disabilities, intellectual disabilities, developmental disabilities, or other special needs. Regardless of the disability, the concern is that your child, “beneficiary,” will not be able to provide for himself or herself as an adult and will need assistance from family and/or the government. Additionally, even in families with the financial ability to secure their disabled child’s future, there may be certain government-funded services and programs from which your child can benefit, and you don’t want them to miss out on those opportunities.
Purpose of Special Needs Trust
One of the primary purposes of a special needs trust is to preserve the beneficiary’s eligibility for means-tested government benefits like SSI and Medicaid. Assets held in the trust are generally not counted when determining the beneficiary’s financial eligibility for these programs. This is significant to ensure your child can still receive the services and benefits that may not be available to him or her should the funds in the Trust be counted.
A trustee is appointed to manage the assets placed in the trust on behalf of the beneficiary. The trustee has a legal obligation to administer the trust in accordance with its terms and in the best interest of the beneficiary. Assets placed into the special needs trust can come from various sources, including inheritances, gifts, personal injury settlements, or other forms of wealth. These assets are intended to supplement, not replace, government benefits.
Two Types of Special Needs Trusts
There are two main types of special needs trusts: third-party trusts and first-party trusts. Third-party trusts are established using assets that do not belong to the beneficiary, typically by a family member, while first-party trusts are created using the assets of the individual with special needs, often as a result of a legal settlement or inheritance. The type of trust to use depends on the source of funding and the specific situation.
Funding the Trust
Parents, you should consider how you will fund the special needs trust. This can include life insurance policies, bequests in their wills, or designating the trust as the beneficiary of retirement accounts. You will also need to ensure that other family members who wish to leave an inheritance to your special needs child, knows to designate the Trust, not the Child, as the beneficiary of that inheritance.
Parents, you should inform family members and caregivers about the existence and purpose of the special needs trust. This can help prevent well-intentioned gifts or inheritances that could disrupt the beneficiary’s eligibility for government benefits. Proper funding ensures there are resources available to support your child after your passing.
Distribution of Special Needs Trust Assets
The trust document typically includes specific language that grants the trustee the discretion to make distributions on behalf of the beneficiary. This discretionary authority allows the trustee to provide for the beneficiary’s needs without disqualifying them from government benefits. The distribution can be for things such as cell phone, vacations that enhance the child’s quality of life, clothes, and other things that will provide support and enhance his or her quality of life.
Selecting a Trustee
The Trustee does not have to be the same person as the Guardian. The same person (or people) can be both the Guardian and Trustee, but you can also name different people in those roles. Selecting the right trustee is crucial. The trustee will manage the trust assets and make distributions on behalf of the beneficiary. You should choose someone who is financially responsible, understands the needs of your child, and is committed to carrying out the trust’s terms. Professional trustees, such as banks or trust companies, are also an option, though this will be an expensive option.
Advocate for Your Child
I don’t have to even write this, because if you are reading this, you are already an advocate for your child. However, even with a special needs trust in place, you will still need to advocate for your child. As you select your guardian(s) and trustee(s), this is an important point to remember as well. They must carry on the advocacy in your absence.