How a Trust Can Protect Your Special Needs Child

Let’s face it: none of us likes to think about death and dying, but we can likely agree that we should plan for the inevitable.

If you have a child with a disability, the need to plan becomes even more critical. The time to plan is now, because your child could be at risk if you die unexpectedly or even become debilitated due to an illness or injury. A carefully written plan gives you, your family, your friends, and your child—everyone—peace of mind.

Your First Step to Getting a Special Needs Trust

Many individuals with disabilities get help from government assistance programs, including programs for low-income families like Supplemental Security Income (SSI) and Medicaid.

These can be a lifeline for many families. However, leaving assets to a physically or mentally impaired or chronically ill person through a typical will or trust could jeopardize their access to these government benefits.

With the help of a special needs attorney, you can establish a special needs trust (SNT) to protect your child’s benefits. Therefore, your first step should be to enlist the help of an experienced special needs lawyer.

“Planning early may seem expensive upfront but will save a lot of money in the long run,” the Special Needs Alliance says.

What Is a Special Needs Trust?

An SNT is a legal arrangement designed specifically for beneficiaries with physical or mental disabilities.

The money in an SNT will not jeopardize that person’s eligibility for public assistance, provided that the trust money only covers financial needs that aren’t covered by government funds.

The money from an SNT cannot be used to pay food or housing; instead, it is used to pay expenses like out-of-pocket medical bills, transportation costs, and for the services of caregivers.

The SNT must be irrevocable, meaning it cannot be changed or terminated without permission from the trust’s beneficiary. The assets in an SNT can’t be seized by creditors or by someone who wins a lawsuit.

The 3 Main Types of SNTs

SNTs come in three forms:

No. 1: A first-party SNT is funded by income or assets which belong to the individual with impairments. Commonly known as a “self-settled” trust, the funding for a first-party SNT comes from a personal injury settlement or an inheritance the beneficiary receives directly. For these financial resources not to count against Medicaid or SSI qualifications, federal law states that the beneficiary must be under the age of 65 when the trust is created. A first-party trust must pay back Medicaid upon the termination of the trust or the death of the beneficiary, whichever happens first.

No. 2: A third-party SNT is sometimes referred to as a “supplemental needs” trust. It is funded with money or other assets belonging to someone other than the beneficiary. Absolutely no funds belonging to the beneficiary can be used to fund a third-party trust. Common funding sources may be inheritances from parents or grandparents, gifts, or payouts of life insurance policies. Medicaid does not have to be paid back with a third-party trust. When the beneficiary dies, the trustee decides how the remainder of the assets in the trust are distributed. Because the beneficiary does not own the assets in the trust, they can remain eligible for benefit programs that have asset limits such as SSI and Medicaid. Generally, the third-party SNT does not replace the beneficiary’s government benefits but adds to them.

No. 3: A Pooled SNT is a trust that is managed by a non-profit organization. The trust pools funds from more than one beneficiary. The funds are in separate accounts and used for each beneficiary’s benefit.

How to Choose the Trustee in a Special Needs Trust

Identifying a trustee for your special needs trust is a critical decision.

While you are likely to manage the trust while you are alive, you need to designate a responsible party to take over when you can no longer serve in that role. It is important that the trustee is impartial and not a member of your family.

Also, the ideal trustee should care about the beneficiary, be fiscally responsible, and understand (or be willing to learn) the laws governing Medicaid, SSI, and other government programs.

Confirm with a potential trustee that they are willing to take on this obligation. Clearly explain to a potential trustee what would be expected of them. You may want to give them a letter detailing their duties. Ideally, your trustee is about the same age as your special needs child, so they likely will be around as long as the beneficiary of the trust.

Look for an honest and honorable trustee who will make decisions based solely on the needs of your child. Some possible trustees could be:

• Your attorney
• A trusted financial institution
• A non-profit organization, particularly one with special needs experience

If you have a child with a disability, contact the Chicago disability lawyers at Nash Disability Law for a free evaluation of your situation and a trusted referral to an experienced special needs lawyer.