Special Needs Trusts
Parents and guardians of children with disabilities should understand the benefits of creating a Special Needs Trust for the benefit of their child. Government benefits, such as DDD services, Medicaid and Supplemental Security Income (SSI), are extremely important for adults with developmental and other disabilities. They provide cash benefits, medical coverage, long-term supports and services for individuals with disabilities. Eligibility for these government benefits is based on several requirements, including that an individual’s personal assets not exceed $2,000.
Government cash benefits are minimal, amounting to income less than the federal poverty level. They do provide for an individual’s most basic needs: food, clothing and shelter. However, Individuals with disabilities often have significant needs beyond what government benefits provide.
Parents planning for the future of their children with special needs want to provide their children with a full life beyond the bare necessities. This is especially important when considering estate planning. If parents, guardians or grandparents leave assets in their Will directly to an individual who is receiving government benefits, they run the risk of disqualifying that individual from receiving future benefits. On the other hand, if they leave assets to a third party with direction that the assets be used on behalf of the disabled individual, they run the risk that the child might not receive the intended assets.
In response to these concerns, the government has established rules for Special Needs Trusts. These rules allow assets to be left in a special needs trust for a recipient of benefits such as DDD Services, SSI benefits and Medicaid, without the individual losing their eligibility. The terms of the trust have to be carefully drafted so that they supplement, but don't replace, government benefits. For example, a common trust provision that the funds be used for the individual's health, support and maintenance will make the individual lose his or her government benefits.
10 Common (And Costly) Mistakes to Avoid
When Planning for Your Special Needs Child
By, Jonathan Bressman, Esq.
#1 DISINHERITING YOUR CHILD – Attorneys without expertise in helping families with special needs children recommend this to protect a child’s public benefits. This is emotionally unsatisfying and not necessary.
#2 IGNORING SPECIAL NEEDS WHEN CREATING A TRUST – A trust that doesn’t take your child’s special needs into consideration can render your child ineligible for benefits. A Special Needs Trust promotes the disabled person’s comfort and happiness without sacrificing eligibility.
# 3 A GENERIC SPECIAL NEEDS TRUST - An attorney with some knowledge can protect a trust from invalidating the child’s public benefits, but many trusts are not customized to each particular child’s needs. This means your child doesn’t receive the benefits that you currently provide or intend your child to have.
# 4 PUTTING A “PAY-BACK” PROVISION INTO THE TRUST – Some attorneys automatically put a “pay-back” provision into their trusts. These provisions are only necessary in certain types of special needs trusts. An attorney who knows the difference can save your family hundreds of thousands of dollars, or more.
#5 PROCRASTINATING – Since you can’t predict when you will die or become incapacitated, you must plan for your special needs child now, while you still can. Your special needs child may never be able to overcome your failure to do so.
# 6 FAILING TO INVITE OTHERS TO CONTRIBUTE TO THE TRUST – A key benefit of creating the trust now is that your family and friends can make gifts to the trust or name the trust in their own estate planning.
# 7 SELECTING THE WRONG TRUSTEE – You can choose who will serve as trustee. You may choose a trusted family member or friend, a team of advisors, or a professional trustee. An experienced attorney can help you make the right decision for your situation.
# 8 RELYING ON YOUR OTHER CHILDREN TO TAKE CARE OF THEIR SIBLING – Your other children will have their own expenses and financial priorities. Your other family member’s death, divorce, creditors, financial setbacks, unemployment, and poor financial judgment can all wipe out what you want your special needs child to receive.
# 9 FAILING TO PROTECT THE SPECIAL NEEDS CHILD FROM PREDATORS – When you plan with trusts, you put a layer of protection around the trust assets, helping to protect those assets from people who would take advantage of your child and protecting them from your trustees’ creditors as well.
# 10 – FAILING TO COORDINATE YOUR PLAN – You can’t plan for your special needs child in a vacuum. All of your assets, how those assets are held, and beneficiary designations must all be properly coordinated to ensure that your plan works as you intend it to.