If you are creating your estate plan in order to provide for a child with special needs, you should beware of the downside of gifting large sums to a child in your will. While this could help pay for future care, it may also disqualify a child for needs-based public benefits. Ultimately, an inheritance given outright could do more harm than good.
Instead, it is much more beneficial to create a special needs trust to provide for your child after your passing. These trusts are designed to manage a disabled party’s resources so that he or she can qualify for public benefits like Supplemental Security Income (SSI) and Medicaid, but still have funds in reserve to cover additional costs.
Choosing the Right Type of Special Needs Trust
A special needs trust gives a beneficiary the best of both worlds: access to government benefits for healthcare needs and a private fund to pay for any additional costs that may arise. Trust funds may be used for clothing, food, housing costs, entertainment, and travel, or home nursing care or medical procedures not provided through government assistance.
There are three main kinds of special needs trusts:
- Third-party trusts. Third-party special needs trusts are set up by a donor (such as a parent or relative) and are funded with the donor’s property, usually as a provision of their estate plan. The beneficiary does not technically “own” the property in the trust and does not have direct access to its funds. Upon the beneficiary's death, any remaining assets in a third-party trust can pass to the donor's other relatives or designated beneficiaries.
- First-party trusts. Since third-party trusts are funded by property owned by someone other than the beneficiary, these trusts do not protect any property in the beneficiary’s own name. If the person with special needs has received an inheritance, personal injury award, court settlement, retirement plan, insurance, divorce settlement, or any other payment, he or she will need a first-party special needs trust to protect these funds while he or she is collecting benefits.
- Pooled trusts. A pooled income trust allows individuals of any age to retain financial eligibility for public assistance even if they earn an income. The beneficiary’s monthly income is held in trust for living expenses and supplemental needs, while public benefits are used to meet their essential needs.
Our law firm was created to help people make difficult decisions that will allow them to care for their family members even after they are gone. Husband-and-wife attorneys Terence J. Ricaforte, Esq. and Renata Landskind, Esq. can help you create a special needs trust, choose the right trustee to administer funds, and ensure that your loved ones are well-provided for after your passing. Contact us today to speak to an attorney about your estate plan.