Lifetime Money Management for Children With Disabilities
Children with disabilities present a unique challenge for parents who are looking to engage in estate planning. For one, you will want to optimize your estate to provide assets for your child. At the same time, maintaining their enrollment in public benefits programs is no doubt going to be essential.
To ensure you meet both of these objectives requires careful planning. A special needs trust is an estate planning tool that can accomplish these and other goals you may have for your child.
How a Special Needs Trust Works
Qualifying for means-tested assistance programs, such as Supplemental Security Income (SSI) or Medicaid, typically requires benefits recipients to meet strict financial criteria. A special needs trust can help an individual with disabilities meet these stringent rules. This is because the assets held in this type of trust are not directly available to the child.
A trustee of a special needs trust provides benefits to the child via the trust. Parents should select this trustee with great care. The trustee will act as the child's money manager, ensuring proper supervision of their finances in the event that the child's parents pass away.
A letter of intent can also be a powerful tool that helps to guide the trustee in making decisions that will best serve the child’s unique needs. (Learn more about what details you should consider including in a letter of intent for a child with a disability.)
Choosing a Trustee for a Special Needs Trust
It is important to think carefully about who to name as trustee of your child’s special needs trust. You may wish to select a person who is not a family member and who would be independent in carrying out this role.
You have a range of options, including the following:
A parent, sibling, or another relative (which, again, can be risky)
A financial institution or a trust company
A nonprofit organization, particularly one with special needs experience
Co-trustees, such as a trust company, acting in conjunction with a family member
Your attorney can help advise you as to the advantages and disadvantages of each choice. In addition, you may want to consider naming someone to serve as a trust protector or trust advisor to guide and oversee the trustee. It can often work well to have a family member serving as a trust advisor to server alongside a professional trustee.
When to Set Up Your Special Needs Trust
The creation of your special needs trust can happen while you are living or at the time of your death.
Parents often set up the trust while alive; this is known as a living trust (or inter vivos trust). A living trust boasts certain advantages, such as:
avoiding probate;
permitting other family members (for example, grandparents) to make trust contributions; and
giving a co-trustee the opportunity to experience what it’s like to administer the trust.
Alternatively, a last will and testament can incorporate creating the trust, known as a testamentary trust.
Types of Trusts
The person who establishes the trust is usually called the Grantor. A special needs trust established by someone other than the disabled beneficiary (such as a parent or grandparent) can be revocable or irrevocable. Generally, a revocable trust can be changed at any time while the Grantor is still living and allows the Grantor to maintain maximum control over the trust. Irrevocable trusts, on the other hand, cannot be changed once they are created. If other family members will be making gifts to the trust, it may make sense to make the trust irrevocable so they are not considered the property of the Grantor.
Money in a special needs trust will not be counted toward income or asset limits by Medicaid or Social Security programs. This ensures that your child will continue to qualify for the support they need while also being able to receive gifts from family members that may further enhance their quality of life.
