Parents of a child with a disability or mental illness may wonder how their child will get along without them. One tool that many families use is a special needs trust.
What is a trust?
When you establish a trust, you appoint a third party to manage real estate, assets, and more. You can do this at any time for just about any legal reason. A trust is a flexible tool and may even have tax advantages.
What is a special needs trust?
A special needs trust is a type of trust that has been tailored to support a beneficiary who is incapable of supporting him- or herself. You can specify in the trust agreement that the beneficiary's housing and medical costs, daily expenses, and any other financial obligations will be paid for by the trust. Trusts are malleable and can include provisions to include many different things.
Parents of a child with an intellectual or physical disability, for example, may wonder how to ensure the child's needs will be met, especially after the parents' death. A special needs trust would pay at least some of the costs of care.
Advantages of a special needs trust
An important advantage of a special needs trust comes into play when government programs are involved. Supplemental Security Income, Medicaid and similar government benefits have income and asset thresholds. Leaving a child enough cash to cover living expenses could disqualify him for those benefits. With a trust, the trustee, not the beneficiary, has control of the assets, and the government ignores them.
How to fund a special needs trust
The funds for the trust can come from anyone and almost any source. In some cases, the beneficiary's own assets are used: a settlement or damages award from a personal injury lawsuit, for example. Or, an inheritance or gift received by the beneficiary may fund the trust. Another source could be child support payments or a divorce settlement.
The funds may also come from someone other than the beneficiary. This third party may be a family member or friend. And even if one person establishes the trust, other people can contribute to it. Typical sources of funds are personal checks or lump sum gifts; a trust may also be an heir to an estate or a beneficiary of a life insurance policy.
Help is available
Since special needs trusts supplement (instead of diminish) Social Security disability and Medicaid benefits, the federal government requires that the trust agreement include certain language and some specific provisions. An estate planning attorney is best suited to help you with your special needs trust. For more information, please call 586-726-1000 or visit our website at www.orlaw.com.