Special needs trusts (sometimes called supplemental needs trusts, or SNTs) help parents protect their children from financial problems and preserve their public benefits.
Purpose of Special Needs Trusts
Government programs, such as Medicaid and Supplemental Security Income (SSI), offer support for special needs children, but these benefits are limited. They only pay for basic essentials, such as food, medical care and equipment, and shelter. Plus, they have strict eligibility requirements. If planning is done poorly, the special needs individual must pay for essentials with his or her own assets before accessing public benefits.
Special needs trusts, created by an act of Congress in 1993, solve this problem by protecting assets you leave to your child. The funds supplement what public benefits provide instead of supplanting them.
Strict rules and regulations govern how these instruments can be formed and operated. Established correctly, they provide a mechanism to pay for a host of expenses, including medical care and shelter not covered by public benefits; home furniture and appliances; a car for the beneficiary to use; professional services; recreational spending, and more.
Two Main Types of SNTs
There are two main types of special needs trusts, which differ in their source of funding.
1. First Party Special Needs Trust. This trust is funded from the beneficiary’s property — for instance, inheritance left to the child or assets won in a lawsuit.
2. Third Party Special Needs Trust. This type of trust obtains funding from a parent, grandparent, or other third party source.
Strategies for Making the Most of Your Trust
Coordinate planning with your family. Close relatives (e.g., your parents) should avoid leaving an inheritance directly to your child. Instead, ask them to leave that inheritance — such as property, life insurance, retirement benefits, and gifts — directly to the trust.
Include clear instructions to avoid burdening your children. Poor planning creates challenges for the siblings of the special needs child, who might not be equipped, emotionally, financially or otherwise, to provide care. If you have adult children, discuss your plans about the special needs child with them, get their input, and express your wishes.
Complete other essential estate planning documents as well. For instance, create a durable power of attorney to allow someone you trust to make decisions on your behalf if you no longer can. A HIPAA release form allows a designated person, such as your spouse, to access your medical records if you become ill. An experienced estate planning lawyer can help you identify and complete your will and other documents in addition to the special needs trust.
Create a SNT, even if you don’t have substantial assets right now. Many young parents with special needs children pay a lot for expensive therapies and doctor visits. Just because you don’t have much in your bank account doesn’t mean a trust isn’t useful, however. For instance, if you die, your life insurance proceeds could go through the trust instead of being given directly to your child as an inheritance, thus preserving your child’s ability to collect public benefits.
Attorney Christopher B. Johnson and his team can help you plan for a bright future for your child. We provide compassionate, strategic estate planning guidance for families. Please call (888) 838-8771 for a consultation.