Special Needs Trusts

What is a special needs trust?
A special needs trust, also known as a supplemental needs trust, allows a disabled beneficiary to receive gifts, lawsuit settlements or other funds without losing his or her eligibility for certain government programs. A disabled adult with as little as $2,000 in assets will be disqualified from government programs such as Medicaid and Supplemental Security Income (SSI). Therefore, special needs trusts are drafted so that the funds will not be considered to belong to the beneficiary Instead, an individual that you name as trustee oversees the distribution of the trust’s funds to the beneficiary so that he remains eligible for public benefits.

Why shouldn’t I just leave the money to my child with special needs?
Money should not go outright to the child, both because she may not be able to manage it properly and because receiving the funds directly may cause the child to lose public benefits, such as Supplemental Security Income (SSI) and Medicaid. Often, these programs serve as the entry point for receiving vital community support services. This is why creating a special needs trust is essential in ensuring quality, long term care for the child.

Who should I name as trustee of my child’s special needs trust?
Naming a trustee is often the most difficult part of creating a special needs trust. Most planners recommend tapping a trusted family member, who will likely know more about the beneficiary’s needs and won’t charge a fee. If no family member is available, you may need to retain an attorney to act as trustee. You may also try a community foundation. Many areas have foundations of volunteers, often the parents of other disabled children, who will oversee the trust.

What type of support will a special needs trust provide?
Special needs trusts are not designed to provide basic support, but instead pay for comforts and luxuries that could not be paid for by public assistance funds. For example, these trusts may pay for things like education, recreation, counseling medical and dental expenses, annual independent check-ups, necessary and desirable equipment such as specially equipped vans, and additional insurance. If the trust is sufficiently funded, the disabled beneficiary may also receive spending money, electronic equipment and appliances, computers, vacations, movies and other self-esteem and quality of live enhancing expenses.

The trustee can use trust funds for food, clothing and shelter if the trustee decides doing so is in the best interest of the beneficiary, however, this may result in a loss or reduction in the beneficiary’s public assistance.

Who can create a special needs trust?
Often, special needs trusts are created by a parent or other family member for a child with special needs. The child may be an adult by the time the trust is created or funded.

In addition, a disabled individual can often create the trust himself, depending on the program for which he or she seeks benefits. These “self-settled” trusts are frequently established by individuals who become disabled as the result of an accident or medical malpractice and later receive the proceeds of a personal injury award or settlement.

Is a special needs trust right for me?
You should consider creating a special needs trust if you are the parent or guardian of a child with special needs. If you have become disabled as a result of an accident or malpractice and receive a personal injury award, you should consider creating a self-settled special needs trust in order to protect that award and remain qualified for public benefits.

It is unlikely that my disabled child will outlive me. Why should I create a special needs trust?
Americans are living longer than they did in years past, including those with disabilities. According to one count, 480,000 adults with mental retardation are living with parents who are 60 or older. This figure does not include adult children with other forms of disability nor those who live separately, but still depend on their parents for vital support.

When these parents can no longer care for their children due to their own disability or death, the responsibility often falls on siblings, other family members, and the community. In many cases, expenses increase dramatically when care and guidance provided by parents must be instead provided by a professional for a fee.

Planning by parents can make all the difference in the life of the child with a disability, as well as that of his or her siblings who may be left with the responsibility for caretaking. Where is your child going to live when he can no longer live with you? Will he move in with a sibling, or into a group home? Who will make the decision? Who will monitor the care he receives? These are vital questions that need to be addressed as soon as possible to ensure that living and support arrangements are in place.

How can I start planning for my child with special needs?
Step 1: Transitioning to a New Living Arrangement
In some cases, it can ease the transition for all concerned if the child moves into a new living arrangement while his parents can still help with the process. In many parts of the country, non-profit organizations and private consultants can help set up the plan, research available options and assist in the move.

Step 2: Drafting a Letter of Intent
Next, it will help everyone involved in the future of the child with special needs if the parents create a written statement of their wishes for their child’s care. They know him better than anyone else. They can explain what helps, what hurts, what scares their child (or adult child), and what reassures him. When the parents are gone, their knowledge will go with them unless they pass it on.

Step 3: Creating a Special Needs Trust
You should retain the services of a lawyer whose expertise lies in the field of estate planning to draw up a special needs trust for your child. The laws of each state are different, so if you move, ensure that your special needs trust is reviewed by a lawyer in your new home state.

Special needs trusts seem complicated. Why shouldn’t I just leave my entire estate to my healthy children and rely on them to help their disabled siblings?
Some parents choose to avoid the complication of a trust by leaving their estates to one or more of their healthy children, relying on them to use the funds for the benefit of their disabled siblings. Except in the case of a very small estate, this is NOT a good idea. It puts the healthy child in the difficult position of having to decide how much of his money to spend on his sibling. Such funds will also be subject to claim by creditors and at risk in the event of divorce and bankruptcy. Finally, the child who receives the funds may die before the disabled child without setting these funds aside in his estate plan.

I’m worried that I can’t adequately fund a special needs trust. How can I provide for the sufficient care of my disabled child after my passing?
A parent with a disabled child should consider buying life insurance to fund the supplemental needs trust set up for the child’s support. What may look like a substantial sum to leave in trust today may run out after several years of paying for care that the parent had previously provided. The more resources available, the better the support that can be provided the child. And if both parents are a live, the cost of “second-to-die” insurance – payable only when the second of the two parents passes away – can be surprisingly low.

In addition, the trustee is responsible for managing the money in the trust, but you should make clear how you want it invested. Consider the life expectancy of the child, how much will be taken out every year and your tolerance for risk. If the amount is large, you may be able to rely on conservative investments, such as certificates of deposit. But if you have a smaller amount and expect your child to live a long time, you may need to include some stock mutual funds.