When making an estate plan, it’s important for parents to carefully consider how their efforts may impact a child with disabilities. The child’s financial future may be largely dependent on this estate plan. Parents may have been caring for a child for their entire life, and they may be understandably concerned about making sure that necessary care will continue after they pass away.
One key resource to consider when making this type of plan is a special needs trust. There are numerous benefits associated with this estate planning tool, when one is constructed thoughtfully.
Maintaining eligibility for benefits
The problem with leaving assets directly to a beneficiary with disabilities is that it may disqualify them from some types of government programs that offer benefits. There may be income and asset-level restrictions regarding the eligibility for those programs, like Medicaid or SSI. In other words, a child may be using these benefits, but if they then receive $500,000 from their parents, the gift could compromise their ability to remain eligible for benefits that they may depend on.
With a special needs trust, a child with disabilities will not own the assets held by the trust directly. The trust will own the assets in question. This arrangement can help them maintain their eligibility because their own personal assets and income level will not change when the trust is crafted for their benefit.
What can trust assets be used for?
It is important to consider how trust resources can be used. For instance, government programs may provide benefits that cover housing or food. As such, the trust should not be used for these types of expenses. With that said, trust assets can be used for many other costs. They could be used to pay for certain medical expenses that have to be paid out-of-pocket, for example, and are not covered by benefits or insurance policies. They could also be used to cover the cost of transportation and supplemental care needs.
In this way, parents may see a special needs trust as a way to give their child the same care that they’ve been providing without ruining the child’s eligibility for critical benefits. To better ensure that the trust creation process meets a child’s needs effectively in this way, seeking legal guidance is advisable.
