It’s normal for parents to worry about the well-being of their children, but when a child has special needs, those worries can increase exponentially—particularly when considering how to best provide for your child when you’re no longer around. Whether they’re adults or minors, children with disabilities often have needs that go beyond basic food, shelter, and medical care. While leaving your assets to your special needs child may seem like a good way to ensure their needs are met, it can also make them ineligible to receive government benefits that they’ll likely require during their lifetime. A Third-Party Special Needs Trust, also known as a Supplemental Needs Trust, is a great option that allows you to provide security for your child with special needs while ensuring that they retain invaluable government benefits.
Government Programs for Individuals with Special Needs
The United States government offers a number of programs that are designed to help care for individuals with special needs, including:
- Supplemental Security Income (SSI): a needs-based income-assistance program for disabled people in low-income families
- Social Security Disability Income (SSDI): an income-assistance program for a disabled individual with a sufficient past work record or for a disabled child of a parent with a sufficient work record if that parent is now dead, disabled or retired and the disabled child’s disability began before the age of 22
- Medicaid: a health insurance program for low-income families and individuals with disabilities
- Medicare: a health insurance program available to disabled individuals after being qualified for SSDI for 24 months
- Section 8 Housing: federal housing assistance program for the disabled
While these programs can furnish your special needs child with health care and basic housing and income, the standard of care that’s given may not be up to par with what you would have chosen yourself. However, providing funds to supplement your child’s care—in the form of an inheritance or life insurance policy—may disqualify your special needs child from receiving some government benefits such as SSI, Medicaid, and Section 8 Housing. When it comes to ensuring that your child has the care he or she requires, setting up a Special Needs Trust is often a much better option than simply leaving funds to your special needs child in your Last Will and Testament, or naming him or her as a beneficiary on your retirement or investment accounts.
Third-Party Special Needs Trusts
Funded by assets belonging to a third-party (parent, grandparent or anyone wishing to benefit a person with special needs), a Third-Party Special Needs Trust can be created to pay for supplemental expenses not covered by SSI or Medicaid. For example, a trustee can distribute trust funds to pay for clothing, dental care, hair and nail care, education expenses, a vacation or hobbies, but not for food or shelter, which are covered by SSI. A life insurance policy, retirement or investment account can name a Third-Party Special Needs Trust as a beneficiary. A Third-Party Trust can also be created in a Last Will and Testament.
First-Party Special Needs Trusts
When a person with special needs has assets or expects to receive assets that would disqualify him or her from eligibility for government programs, a “first-party” or “self-settled” special needs trust can be created to protect both the assets and public benefits.
Some situations where a First-Party Special Needs Trust may be appropriate include:
- Lawsuit settlement. A first-party trust can allow a disabled individual to receive a personal injury award without losing eligibility for public benefits. Lump-sum or annuity payments can be directed to a first-party special needs trust established by the court.
- Divorce settlement/child support payments. If a disabled spouse qualifies for public benefits, the divorce settlement can direct monthly alimony or a lump sum distribution to be placed in a first-party trust. Child support payments can also sometimes be paid into a first-party trust to protect the government benefits of a disabled child.
- An inheritance or life-insurance proceeds. An inheritance or life insurance payout can often cause a disabled person to lose public benefits. If a third-party special needs trust has not been created, the inherited assets, now “received,” can be placed in a first-party special needs trust. Although a Medicaid payback is now required, the first-party trust will allow the disabled individual to retain his or her inherited assets and government benefits.
Basic Requirements of First-Party Special Needs Trusts
- The beneficiary must be disabled.
- The beneficiary must be under age 65 at the time the trust is established.
- The trust must be established by a parent, grandparent, guardian or the court. Then the beneficiary’s own assets are used to fund the trust.
- The trust funds are used for the sole benefit of the disabled beneficiary.
- At the beneficiary’s death, the state Medicaid agency must be reimbursed from any remaining assets in the trust fund.
Because each situation is unique, it is important to discuss your best alternatives with a knowledgeable special needs planner.
Let Packard Law Firm Help You Protect Your Most-Vulnerable Family Members
Interested in learning more about how a Special Needs Trust can protect your family member with special needs? Call our San Antonio office today at 210-340-8877 or toll-free at 855-464-7599 for additional information or a consultation. Packard Law Firm’s team of dedicated and experienced attorneys can help you establish a Special Needs Trust as part of a comprehensive estate plan.