As a parent, you instinctively work to ensure your child’s safety and well-being. If your child has special needs, you face unique challenges that require thoughtful planning to secure their future, especially for a time when you might not be there to offer your care and support. One way you can provide continuous financial support is through the establishment of a special needs trust (SNT). However, it does not end there. You must ensure that you structure your estate plan in such a way that it will preserve your child’s eligibility to receive government benefits.
Establishing a special needs trust
An SNT is a legal arrangement that allows you to set aside funds for your child without affecting their eligibility for essential government benefits like Medicaid or Supplemental Security Income (SSI). Here are some important things you should know about establishing an SNT:
- Choose the right type of trust: There are different types of Special Needs Trusts, and selecting the appropriate one depends on your circumstances and objectives. A Third-Party SNT is typically funded by family members and does not require payback to the state for benefits received by the beneficiary.
- Appoint a trustworthy trustee: The person you appoint will manage the trust assets and make disbursements on behalf of your child. The trustee’s role is vital, as they must understand the impact of trust distributions on public benefits.
- Define the purpose of the trust: Clearly outline how the trustee should use the funds. This might include education, medical expenses, personal care attendants and other needs not covered by public assistance programs.
Protecting your child’s access to government benefits requires a careful balancing act. You must understand how assets and direct inheritances can disqualify them from receiving aid.
Protecting their government benefits
Coordinate with family members and educate them about the importance of channeling gifts or inheritances through the SNT. Also, remember to review your beneficiary designations and update them when necessary. You can name the trust as the beneficiary of insurance policies and retirement accounts. Leaving insurance policies and retirement accounts directly to children with special needs may seem like a straightforward way to provide for their future. However, this well-intentioned act can have unintended consequences that compromise the very support systems your child may rely on. Needs-based government programs like Medicaid and SSI have strict asset limitations. A direct inheritance could easily exceed this amount, disqualifying your child from these crucial benefits.
Proper estate planning ensures that any inheritance or gifts enhance your child’s quality of life without disrupting their benefits.