Create a Special Needs Trust to Protect the Financial Future of Your Child with Special Needs
Are you the parent of a child with special needs? Then this article is for you. Are you aware of what you need to do to ensure the future well-being and care for your child? If you ever become incapacitated or die, you’ll need some estate planning in place to provide for the emotional, physical, and financial needs of your child.
Like with every minor child, the first step to safeguarding their well-being is to name both short- and long-term guardians in case anything happens to you. The only difference is that the responsibility of raising your child may not end when your child turns 18 if they cannot grow into an independent adult able to fend for themselves.
While we understand this lifetime responsibility probably feels overwhelming, we’ve been told repeatedly by parents that naming legal guardians in writing and knowing their child will be cared for in the way they want, by the people they want, creates immense relief.
You can include instructions and incentives in your plans whereby the named guardian is compensated for taking your child to dinner and the movies weekly or doing things they enjoyed doing with you. Without written instructions (and perhaps compensation) built into the plan, fun activities like this can often go by the wayside when you’re no longer available.
Special Needs Trusts
Beyond naming a guardian, you’ll also need to provide financial resources to allow your child to live out their life in the manner you desire. This is where things can get tricky for children with special needs. In fact, it may seem like a “Catch-22” situation. You want to leave your child enough money to afford the support they need to live a comfortable life. Yet, if you leave money directly to a person with special needs, you risk disqualifying him or her for government benefits.
Fortunately, the government allows assets to be held in what’s known as a “special needs trust” to provide supplemental financial resources for a physically, mentally, or developmentally disabled child without affecting his or her eligibility for public healthcare and income assistance benefits. However, the rules for such trusts are complicated and can vary greatly between different states, so you should work with us as your Personal Family Lawyer® in order to create a comprehensive special needs trust that’s properly structured and appropriate for your child’s specific situation.
Setting up the trust
Funds from a special needs trust cannot be distributed directly to a beneficiary and must be disbursed to a third-party who’s responsible for administering the trust. Given this, when you initially set up the trust, you’ll likely be both the “grantor” (trust creator) and “trustee” (the person responsible for managing the trust), and your child with special needs is the trust’s “beneficiary.”
You’ll then name the person you want responsible for administering the trust’s funds once you’re no longer able to as “successor trustee.” To avoid conflicts of interest, overburdening the named guardian with too much responsibility, and provide checks and balances, it can sometimes be best to name someone other than your child’s guardian as trustee.
As the parent, you serve as the trustee until you die or become incapacitated, at which time the successor trustee takes over. Each person who serves as trustee is legally required to follow the trust’s terms and use its funds and property for the benefit of the individual with special needs. In all cases, you should name a series of successor trustees, which can even be a bank, trust company, or other professional fiduciary, as backups to your primary named trustee.
Placing money and property into a special needs trust
There are two ways to set up a special needs trust. In one situation, we build it into your revocable living trust, and it will activate upon your death. From there, assets that are held in your revocable living trust will be used to fund your child’s special needs trust.
In other cases, we can set up a special needs trust that acts as a vehicle for receiving and holding assets for your child now. This makes sense if you have parents or other relatives who want to give your child with special needs gifts sooner rather than later.
The trustee’s responsibilities
Once the trust is funded, it’s the trustee’s job to use its funds to support the beneficiary without jeopardizing eligibility for government benefits. To handle this properly, the trustee must have a thorough understanding of how eligibility for such benefits works and stay current with the law. The trustee is also required to pay the beneficiary’s taxes, keep detailed records, invest trust property, and stay current with the beneficiary’s needs. Given this huge responsibility, it’s often best that you name a legal or financial professional who’s familiar with the complexities of the law as trustee or co-trustee so they can properly handle the duties and not jeopardize eligibility.
If you want to create a special needs trust for your child, contact us as your Personal Family Lawyer ®. We can develop a sustainable living plan for your child that will provide them with the financial means they need to live a full life while preserving their access to government benefits. Contact us today to get started.
This article is a service of Levi Alexander, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.
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