Special needs trusts provide needed income for disabled children

Raising a disabled child comes with a lot of extra responsibility. When the child is young and living at home, his or her parents can be depended on to provide the necessary financial support. However, it is extremely important to plan for the inevitable and put an estate plan in place that will allow the disabled individual to remain well taken care of once his or her parents pass away.

The best way to do this is through the creation of a special needs trust. A special needs trust can provide income while ensuring that the disabled individual remains eligible for Supplemental Security Income, Medicaid and other means-tested government programs.

What is a special needs trust?

Special needs trusts are intended to provide income for expenses that government assistance does not cover. For example, while Medicaid will cover most medical care and SSI will provide for basic living expenses, it may also be desirable for the disabled person to have access to income for education, entertainment, transportation or other expenses.

Special needs trusts ensure that a disabled individual has access to the resources needed to lead a full and well-rounded life, even after his or her caregivers have passed away.

Special needs trusts do not provide income directly to the disabled person. Instead, a trustee is appointed to distribute funds as appropriate. In some cases, the trustee is a relative, while in others it may make more sense to appoint a bank or a social worker. The point is to choose someone who can be trusted to have the disabled individual's best interests at heart.

Creating a special needs trust

It is important to be extremely careful when creating a special needs trust. Even a small error can significantly jeopardize the disabled individual's financial security.

Federal law sets strict limits on the assets a person can possess while still qualifying for Medicaid and SSI. A disabled individual who inherits outside of a valid special needs trust will likely be rendered ineligible for government assistance. Depending on the extent of the disability, the individual may not be an effective self-advocate to remedy this situation once the caregiver he or she is used to has passed away.

This is just one of the many considerations relevant to setting up a valid and effective special needs trust. Because of the high stakes involved, anybody interested in establishing a special needs trust would be wise to consult with an experienced estate planning attorney. The attorney will be able to evaluate the family's situation and advise on the best options for moving forward.