Parents who have children with special needs face a series of challenges when it comes to raising a child with special needs. Many schools lack the funding or personnel to deliver the education they need and deserve. Additionally, these parents are committed to working with their child’s disabilities to ensure their kids receive the support they need. This line of thought extends to estate planning too. When you create an estate plan for the benefit of your family and children, parents who have children with special needs have to take a unique approach.
The reason is that your child will likely receive need-based support from the government in the form of Supplemental Security Income (SSI) or Medicaid. Parents create trusts for various reasons, but one is to ensure their children are taken care of when they are gone. This is especially important for parents who have special needs children whom they have supported and loved throughout their lives. When a special needs child (or adult) receives a significant amount of money, they may lose their eligibility for SSI, Medicaid, and other government-funded programs they rely on. They may only be able to manage this money with outside assistance.
How a Special Needs Trust Can Be Your Solution
One of the most significant benefits of special needs trusts (there are different types) is that the money in the trust will not impact their eligibility for SSI or Medicaid. Even more importantly, the trust will have a trustee to help the special needs child access their money. Your child will have a support system to help them manage the money, maintain their benefits, and help them pay for things to preserve their quality of life. The funds from the SNT need to be used for things not covered by SSI, such as educational pursuits or hobbies.
Though there are several different types of special needs trusts, they fall into one of two categories:
- First-Party Special Needs Trust
- Third-Party Special Needs Trust
Third-party SNTs are created with funds that do not belong to the beneficiary. Parents or grandparents can utilize these types of trusts for their special needs children. When you meet with your estate planning attorney, you can dictate how the trust gets distributed to your child when you pass away. When this trust is terminated, nothing requires you to pay anything back to Medicaid.
Although that last part likely didn’t make much sense, it will in a moment. Unlike a 3rd party trust, a 1st party trust is funded with assets belonging to the beneficiary. Imagine that your son or daughter receives a sudden influx of money from a source other than you. For example, they win a medical malpractice lawsuit. The settlement could jeopardize their eligibility, but they can avoid that by putting their settlement money into a first-party trust. When the beneficiary of the trust passes away, Medicaid can get reimbursed for the money it spent on the beneficiary before those funds are distributed to other beneficiaries.
Protect Your Loved Ones with a Trust
Luis E. Barreto & Associates, P.A. has extensive experience creating a wide range of trusts for our clients. After we learn more about what you want to get out of your estate plan, we will explain how to structure and administer them to fit your needs. Contact our office today to schedule a consultation.
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