Setting up a special needs trust

1/3/2014 5:04:10 PM

If you have a child or other loved one with special needs, you may want to establish a special needs trust. A special needs trust is an estate planning tool that can help you provide for the needs of an individual who is disabled without jeopardizing his or her eligibility for government benefits. A qualified attorney can help you establish and administer this type of trust.

Unlike other types of trust often used in estate planning, the primary goal of a special needs trust is to provide for the needs of an individual who is disabled throughout his or her life.

Federal and state benefits are generally available to qualifying children and adults who have special needs. If your child qualifies for government benefits, one of your goals may be to ensure that his or her eligibility continues into the future. A special needs trust can help you attain this goal. In addition, this type of trust can provide for supplementary care and services for your loved one.

In determining eligibility for Medicaid, a state may count only the income and assets that are legally available to the applicant. A special needs trust restricts the beneficiary's own direct access to the assets in the trust to such an extent that the assets are not considered legally available to the beneficiary. Thus, a special needs trust can protect Medicaid eligibility because assets in the trust are uncountable.

Children and adults with special needs who have limited income and resources often receive monthly benefits from Supplemental Security Income (SSI). These cash benefits can be used for basic needs such as housing and food. But because SSI benefits are need-based, inheriting money can mean that a child with special needs will lose his or her eligibility for this benefit program. By naming a special needs trust as your beneficiary instead of your child, however, assets can be devoted to the care of your loved one. In addition, since SSI recipients are normally automatically eligible for Medicaid benefits, preserving your child's eligibility for SSI may preserve his or her eligibility for Medicaid as well.

In many cases, a special needs trust is established, but not funded, while the parent or other creator is alive. Upon the parent's death, his or her will transfers the special child's portion of an inheritance to the special needs trust. The trust (instead of the child) can also be designated as the beneficiary of various assets, such as retirement plan benefits, property, investments, and cash.

If you’re thinking about setting up a special needs trust, four things to consider are:

Selecting a Trustee: A trustee is a person or institution chosen to administer a trust and manage its assets. Their role is to adhere to the terms in the trust documents and fulfill its objectives.

Providing a letter of intent: If the trust is set up through your will, you may also want to draft a letter of intent to describe how you want your child to be cared for after you are gone. Although it’s not a legal document, it can provide important information to guardians, trustees, family members, and other involved in the care of your child. The letter may include medical needs, daily routine, interests, liked and disliked religious practices, living arrangements, etc. for your child.

Informing family members: Explain to siblings and other family members why you are setting up the special needs trust. Although siblings may expect to receive equal inheritances, more resources will probably need to be set aside for the benefit of your child with special needs. Explanations and clear directions now may avoid family conflicts later.

Working with a qualified attorney and financial professional: Special needs’ planning is complex and technical, and the laws that govern special needs trust differ from state to state. To properly plan for your child’s future, work with a qualified attorney and financial professional who has experience with the planning needs of families of individuals with disabilities. They should have a thorough understanding of the income, gift, and estate tax consequence that must be considered when funding and administering a special needs trust.

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