Planning to Protect Children with Special Needs

We've previously addressed how estate planning can be used to protect minor children in the event of unexpected events. For those parents whose children have special needs this planning is even more important, as it can impact eligibility for programs that assist their children with their day to day lives. Thankfully it is possible to protect children with special needs and maintain their eligibility for such programs through the use of a Supplemental Needs Trust.

The birth of a special needs child changes the lives of a family dramatically. In addition to the lifelong challenges, parents must also plan for the child’s care and well-being in the event of their deaths or inability to care for their child. It is important for parents address these issues in their estate planning, failure to do so can have serious implications for their child’s future care.

A supplemental needs trust, also known as a special needs trust, can be an important planning tool for parents of children who are likely to need special care and support for their entire lives. A supplemental needs trust protects assets for the benefit of a special needs child without jeopardizing eligibility for means tested benefits such as Medicaid, Medicare, and Supplemental Security Income. If properly drafted, assets in supplemental needs trusts do not count toward eligibility calculations for these and other potential benefits.

As indicated by the name, supplemental needs trust assets can be used to supplement governmental benefits by paying for care and items that are not covered under those programs. Funds can also be used for enrichment purposes, such as costs of visiting family members, specialized education programs, and allowing the child to live in the similar manner as when the parents are alive.

While a supplemental needs trust can be established at any time, parents risk not providing protection to their special needs child in the event of an untimely death prior to completing appropriate estate planning. The supplemental needs trust can be funded immediately with discretionary assets or funded with assets from a parent’s Living or Revocable Trust at death. A supplemental needs trust is not only for wealthy families with significant assets, but also for others who may not currently have significant assets but still have a desire to protect their child. Often a supplemental needs trust is funded with a life insurance policy so that funds are available for use for the child on the death of parents. By working with a qualified financial planner and/or insurance professional, a parent can determine the type of policy and amount that best protects their child.

Once parents establish a supplemental needs trust it is important to inform grandparents and other family members of the existence of the trust so that funds otherwise available or to be given to the child can be directed into the trust for the benefit of the child rather than to the child directly, avoid a potential error that would interfere with government benefit eligibility.

It is important to remember that protecting special needs children is more than simply setting up a trust for their benefit. Another important aspect of this planning is the need to choose the correct trustee to administer the trust. Parents should try to pick a trustee who knows the child and knows and supports their wishes for the child's benefit. Often the trustee is a family member who knows the child well and is able not only to communicate with them but also use the trust assets to provide an appropriate lifestyle. Parents will often spell out their wishes for the child's in a separate letter, giving the trustee a better idea of their wishes for their child.

The rules for government benefits are complex and therefore parents should consult with an attorney knowledgeable with not only those rules and also supplemental needs trusts in order to ensure that any planning provides the maximum protection for their children.

Alan and Matt