Understanding Special Needs Trusts

Estate planning is difficult enough for most families, who must plan for their own financial requirements during retirement years and deal with uncertainties involving their own future health and well-being.

Parents of children who are disabled or have special needs must, in addition to the usual decisions about personal future financial needs and disposition of assets, consider the future requirements of their special child. Who will care for the child when they are no longer present or physically able? Will government programs be available to assist? Will the child continue to qualify?

Government programs are often necessary to fill the gaps that the parents of a disabled child are unable to fill, and so many disabled children qualify for Supplemental Social Security (SSI) or Social Security Disability Income (SSDI), which are available to pay benefits to persons who have a physical or mental impairment that prevents them from performing substantial gainful employment.

If a child is not qualified to receive SSDI on their own or their parents contributions to Social Security because he or she does not meet specific program requirements, they fall under the supplemental programs which are based upon financial need, specifically SSI and Medicaid.

Plan for the Future

Careful planning by parents is required to assure that their own estate plans or those of other relatiives do not jeopardize the eligibility of the special child for these important program benefits, which may be worth many times the value of the disqualifying inheritance. Unlike SSDI and Medicare, eligibility for SSI and Medicaid benefits depends upon the person having limited income and resources according to program guidelines. With certain exceptions, the recipient of these forms of assistance may own only $2,000 of resources without being disqualified from the programs. Inheritances and gifts are specifically included as disqualifying resources, so that great care must be taken to avoid a casual gift to an SSI recipient that might cause him or her to exceed resource limitations.

The Key Ingredient

For most families with special children, the Special Needs Trust is a key ingredient in the planning solution. A properly drawn Special Needs Trust can provide a repository for inheritances and gifts that are intended to benefit the special child, while protecting access to these important government programs and providing a life-long support system.

Under these trusts, the beneficiary has no power over the assets in the trust, and trust income and assets are used to provide life-enhancing extras for the child rather than items of food, clothing and shelter which would constitute income under social security regulations. Funds are provided directly to providers of services, and the trust itself may own items of property that are used by the beneficiary.

Life insurance is often used to assure that adequate funds are available to the trust to provide for the supplemental needs of the beneficiary in case of premature death of one or both parents or upon the parents' retirement. Careful financial planning can help in choosing types of amounts and types of insurance to fund these trusts.

Choosing the Advocate

In addition to financial considerations, the family planning a Special Needs Trust must consider which family members are available to look after the needs of the special child and act as his or her advocate when the parents are no longer on the scene.

The abilities and dispositions of family members must be considered, as well as their affinity for the child and knowledge of his or her habits and needs, in deciding the roles to played by the various caretakers in the absence of the parents.

Final Thoughts

A properly drafted Special Needs Trust supplements, but does not replace, federal and state benefits for the special child, enabling the child to enjoy a more fulfilling, happier life.