Most parents worry about how their loved ones will get by after they are gone, but for parents of children with special needs, that worry takes on an extra sting. They want to make sure that their loved one has the resources they need to pay for a lifetime of care.
At the same time, they need to be careful about how they provide these resources. They could just give the child the money in a will, but their child may not be up to the task of managing it themselves. What’s more, an influx of cash could render the child ineligible for the benefits programs they badly need.
To get around these problems, many parents use a type of estate planning tool known as a special needs trust.
Creating a trust
A trust is created when a person (known as the grantor) places assets under the control of a trustee, who manages the assets for the benefit of a beneficiary. There are many ways to design a trust, and they can be tailored for a wide variety of situations, needs and goals.
A trust can go into effect during the grantor’s lifetime or upon their death. In some trusts, a grantor names themselves as the beneficiary and then names their heirs as their successor beneficiary. In this way the trust continues after the grantor’s death.
For the purposes of estate planning, one of the main benefits of putting assets in a trust is that, because the assets are no longer owned by the grantor, they are not considered as part of the grantor’s estate when the grantor dies. Because they’re not part of the estate, they don’t have to go through the probate process.
Special needs trusts
A special needs trust takes some of these concepts and tailors them for the unique situation of a beneficiary who has special needs. In this type of trust, the trustee manages the assets for the person with special needs, giving them regular payments, directly paying their care providers, or otherwise using the assets in the trust to provide for the beneficiary’s needs.
Furthermore, a special needs trust can be set up so that the beneficiary maintains their eligibility for government programs such as Medicaid or Supplemental Security Income. These programs pay for the basic expenses of many people with special needs, but generally don’t pay for any other expenses that might come up. However, these programs also have strict financial eligibility requirements. A person who has more than a certain amount of income or assets becomes ineligible for the programs.
When instructed to do so, a trustee can get around this problem by ensuring that the beneficiary’s needs are met without disqualifying them for their much-needed benefits.