If you are the parent of a disabled child you must consider how to leave property to your child, and whether you can provide sufficient assets to provide for your child for their lifetime. This is not as easy as it first may seem. A disabled child may never have the mental capacity to manage their own financial affairs, you may not have assets that can fund the needs of the child for the rest of their life, and if your child receives assets directly they may lose access to essential government benefits.
Fortunately, there is a solution to this dilemma that is relatively straight forward and cost effective. A Supplemental Needs Trust, or more commonly called a Special Needs Trust, can be created for the benefit of the Special Needs Child. A properly drafted Special Needs Trust will solve the above mentioned problems, and more. The trust can provide for an advocate to make sure your child receives proper care and the services that he or she needs when you are no longer there to do so. The trust can pay for your child's personal items, vacations, and social events.
There are occasions where Medicaid will not pay for certain medical care or treatments that you would have provided for if you were there to make the decision. The trustee for the trust, your child's advocate, can then step in and provide for these services if necessary. The trust is drafted such that the trustee can pay for items in their discretion so that the means test for essential government benefits is not violated.
If you do not have the wealth necessary to fund the Special Needs Trust, the trust can be funded with Life Insurance. A very cost effective strategy is to fund the trust with a second to die policy that pays out the benefit to the trust when the second parent dies. Since the policy is based on two lives, the cost is substantially less than a policy based on a single life.
A Special Needs Trust requires specific language to accomplish its goal. For example, it must state that it is intended to provide supplemental and extra care over and above what government benefits may provide. It also must state that it is not intended to be a basic support trust. It should also reference the various relevant government codes and statutes that authorize the creation of this type of trust.
It is a good idea to create a Special Needs Trust early in a child's life as a long-term means to hold assets for the child benefit, and provide for the child in the event of the untimely and early death of the parents. The trust can be created as part of the parent's estate plan. The trust can be established at any time before the child's 65th birthday.
Who should prepare your Special Needs Trust? An estate planning or tax attorney that is familiar with the special issues and provisions of this type of trust. A poorly written Special Needs Trust can cause loss of government benefits, and other financial assets. An attorney that specializes in this area knows the special concerns of this type of trust, and drafts special language into the trust document to preserve and protect the assets for the benefit of the special needs child.