What is a Special Needs Trust and who needs one?
Q: What is a Special Needs Trust and who needs one?
Special Needs Trusts
For anyone who has parent, child or sibling with special needs that depends on you for financial assistance, creating or making provisions for a special needs trusts is critical for ensuring that if something were to happen to you that financial resources would be made available to them without jeopardizing their government benefits (ie Medi-Cal and SSI). Without proper planning, your dependent could inherit your assets, become disqualified from their government benefits and then be forced to spend their inheritance before they can requalify for those benefits. Setting up or making a provisions for a special needs trusts is the first step in making sure they can both receive their government benefits and financial assistance from your estate.
Below are some frequently asked questions regarding special needs trusts.
- Q: How does a Special Needs Trust work?
- A:Typically a special needs trusts is set up by a parent for their special needs dependant and funded by assets of the parent or other relatives. This is known as a third party special needs trust and can be set up by meeting with your estate planning attorney. If the trust is created while the parents are alive (usually once their child turns 18), the parents will usually serve as the trustee and a successor trustee is nominated in the trust in case something happens to the parents. The money and/or assets held by the trust can be used to supplement any of the government benefits their child receives. The key aspect to keeping the dependant eligible for those benefits it not to allow their child to have direct control of more than $2000 at the end of each month. Special care need to be taken in both the drafting of the trust and the execution of the trust by the trustee to ensure there is no interruption in the child’s eligibility for their government benefits.
- Q: How do I set up a Special Needs Trust
- A: Parents have two choices with regards to setting up special needs trusts. The trust can be created while the parents are alive or a provision can be made in their will or living trust. If the source of funds for the trust will be the dependent’s inheritance once the parents have passed, then the parents need only have a provision for the special needs trust in their will or trust. If funds for the trust will be coming from another source (other than the dependant), then the parents may want to consider having the trust created while they are alive. Consult your estate planning attorney to see which approach is best for your situation.
- Q: How do I fund a Special Needs Trust
- A: For most parents, the funding of the trust will only occur once the parents have passed on and will consist of the dependant’s share of the inheritance. Since in all likelihood the dependant will be completely reliant on such an inheritance, it is important for the parent to take steps to ensure that there will be adequate assets available to help provide for the dependant for the rest of his or her life. Often, parents will use life insurance as a means to ensure that there will be adequate assets for their dependant. It is important that a third party special needs trust should never be funded with assets of the dependant . Otherwise, the trust will be considered a first party trust which may require court confirmation and/or repayment of benefits from the residual of the trust once the dependant has passed.
- Q: Who gets the assets once the dependant has passed?
- A: The parents who created the trust can provide a contingent beneficiary to whom the remaining assets will go if the dependant for the trust passes on.
- Q: How does one choose a Trustee?
- A: Choosing a successor Trustee is one of the most critical decisions a parent will make with regards to a Special Needs Trust. In addition to being responsible for managing the assets of the trust, the trustee will be responsible for providing both emotional and financial support for your child. Thus if possible you want to choose a person who not only can manage the assets on the child's behalf but perhaps more importantly be capable of having a personal relationship with the child. Someone can always be hired to manage the assets, it is much more difficult to find someone who can communicate effectively with your child.
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