A special needs trust is necessary to preserve essential public assistance benefits.
You have a child with special needs.
You know you will not always be around for them.
To be blunt, what will happen to your child when you and your spouse are both deceased?
According to a recent KAKE article titled “How a Special Needs Trust Works,” you need to plan carefully for your child with special needs.
If you leave the inheritance “outright,” then you may render your child ineligible for means-tested benefits like Social Security Disability Insurance (SSDI), Medicaid, and Supplemental Security Income (SSI).
Because these programs have asset limitations, an outright inheritance would disqualify them.
Can you provide for your child financially without triggering this event?
You could implement a special needs trust, also known as a supplemental needs trust.
As a result, the trust would “own” the inheritance instead of your child.
The trustee will carefully administer the trust assets for the beneficiary.
Because your child does not control the funds, the trust assets will not disqualify them from government support.
Are there specific rules governing these trusts?
For example, the trust must be created before the beneficiary turns 65 and there are often restrictions on how the funds may be used.
Depending on your state of residence, there may be several options for this trust.
One option is a first-party special needs trust.
This trust is used when your child actually owns the assets.
In this case, the child would be the grantor and the beneficiary.
This planning can be quite complicated and you must be mindful of state-specific laws governing validity.
A third-party special needs trust is created with assets that have never been “owned” by the child with special needs.
Another trust option is a pooled special needs trust.
A nonprofit organization will manage the assets in the trust and invest them.
Benefits are made available to the beneficiary based on the percentage of assets managed on his or her behalf as part of the overall pooled trust.
The nonprofit will take a fee in exchange for the services provided.
Whatever option you choose, the trust needs to be irrevocable to protect it from lawsuits and creditors.
Work with an estate planning attorney who is experienced in special needs trusts to help you create a plan to meet the needs of your family.
Taking steps now will help you provide for your child with special needs when you are no longer living.
Reference: KAKE (September 30, 2019) “How a Special Needs Trust Works”