When your family includes a child with special needs, you may not be aware of the estate planning tools available to help you. A special needs trust can provide peace of mind that your child will not be disqualified from receiving government benefits because he or she receives income.
What Is a Special Needs Trust?
A special needs trust is set up to provide support for a child or adult with special needs or disabilities. The IRS recognizes special needs trusts (SNTs) as long as they meet certain requirements, allowing SNT beneficiaries to receive income from the trusts while retaining income eligibility for government benefits. An SNT can provide a child with special needs money to pay for certain expenses, such as some types of medical care, educational costs, and more.
Why Is Government Benefits Eligibility Important?
Even if your family is wealthy, having a child with special needs can create significant financial strain. You may think that your family can pay for your child’s care out of pocket without resorting to government aid. Ultimately, however, this may not be financially feasible – especially when you factor in the cost of long-term care or skilled nursing.
Government benefits, such as Social Security and Medicaid, provide the extra help that your family needs for your child. These programs have strict income and/or assets limits for people who use them. Your child cannot receive significant gifts from family members or income from working without risking the loss of the government benefits he or she needs. An SNT allows family members to contribute toward your child’s care without losing eligibility for the benefits.
Why Can’t You Just Make Your Child a Beneficiary of the Family Trust?
Making your child with special needs a beneficiary of the family trust is a good way to jeopardize his or her eligibility for government benefits. Any income that he or she receives from the trust (and in some cases, expected income in the future) may count against the strict government limits.
Well-meaning relatives often make gifts of money to children, or make them the beneficiaries of trusts or life insurance policies. You need to speak to your family members about why your child with special needs should not receive this kind of gift. As an alternative, your relatives can contribute to a special needs trust for the child’s benefit in the future.
Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.