Parents want to provide the best possible care for their children. But when a child has special needs, planning for their future can be complicated. A special needs trust allows families to enhance their disabled child’s quality of life without affecting needs-based government benefits.
With the right planning, you can pursue your child’s best interests while retaining access to essential programs like Medicaid and Supplemental Security Income (SSI).
What Are Special Needs Trusts and Who Qualifies?
A special needs trust is a legal arrangement that holds assets for a beneficiary with disabilities. The assets in the trust can pay for therapies, equipment, education, recreation and other expenses to enhance the beneficiary’s life. But the assets are not considered available to the beneficiary when determining their eligibility for government benefits.
To qualify for a special needs trust, the beneficiary must have a mental or physical disability that prevents them from being gainfully employed. Common qualifying conditions include:
- Cerebral palsy
- Autism
- Down syndrome
- Intellectual disability
- Mental illness
There are two main types of special needs trusts:
First-Party Special Needs Trusts
Also called self-settled trusts, these are funded with assets belonging to the beneficiaries themselves, often from an inheritance or personal injury settlement. These trusts must contain a payback provision to Medicaid.
Third-Party Special Needs Trusts
Assets fund these from someone other than the beneficiary, like a parent or grandparent. No Medicaid payback is required, and assets can be passed to other beneficiaries with special needs after the death of the beneficiary.
Can I Set Up This Type of Trust for My Child?
Whether you can establish a special needs trust depends on several factors:
Does Your Child Get SSI and Medicaid?
If your child depends on these needs-based government benefits, a properly structured special needs trust can help protect their eligibility. Without careful planning, an inheritance or other funds could disqualify them.
What Is the Source of Funding?
- If using the child’s own assets, you need a first-party special needs trust.
- If using your own funds, a third-party trust works.
How Will the Trust Be Funded?
Common sources include savings, inheritance, life insurance payouts and lawsuit settlements.
Who Will Serve as Trustee?
Choose a trustee who will manage the trust prudently on your child’s behalf. Many families select a sibling, relative or professional trustee.
Setting Up a Special Needs Trust in 5 Steps
Follow this process to establish a special needs trust for your child:
1. Consult an Attorney
Work with an experienced special needs planning attorney to ensure the trust meets all legal requirements. Minor errors could jeopardize your child’s government benefits.
2. Create the Trust Document
The attorney will draft a customized trust document outlining the terms and rules for using trust funds.
3. Fund the Trust
To be valid, the trust must be funded during your lifetime. This can happen all at once or in stages over time.
4. Choose a Trustee
Select a responsible trustee who will manage the trust and oversee distributions for your child’s benefit.
5. Monitor the Trust
The trustee should provide you with regular accounting and reporting to ensure the trust is being properly administered.
The Benefits of Special Needs Trusts
With proper planning, a special needs trust allows you to:
- Pay for therapies, equipment, recreation and education to enhance your disabled child’s life
- Supplement government benefits without affecting eligibility
- Designate trustees to manage assets and inheritance on your child’s behalf
- Provide instructions for trust distributions tailored to your child’s needs
- Protect assets from misuse, mismanagement and claims by creditors
Special needs trusts empower families to improve their disabled child’s quality of life while retaining access to essential healthcare and income assistance programs.
Consult a Special Needs Planning Attorney
The rules surrounding special needs trusts can be complex. Well-intentioned gifts or inheritances could easily be structured improperly, compromising your child’s eligibility for government benefits.
At Elder Needs Law, their Florida-based special needs planning lawyers have significant experience establishing special needs trusts to protect eligibility and enhance quality of life. Contact their team online today to discuss your child’s unique needs.