The Special Needs Trust: Catering to Your Child’s needs

Contributed by Rosie Cisneros

For parents of children with special needs, the death of a parent often raises a big question: What happens now? Parents of autistic and mentally or physically handicapped children know their children have special needs. And those special needs generally don’t disappear with age. According to Coletta Anderson, office manager for Lodmell & Lodmell, the Special Needs Trust is for people who know they’re not going to be around forever and want to leave something to ensure the child’s care.

Parents generally want their child to be cared for, but restrictions on eligibility for Medicaid and government benefits make doing so sticky. By putting a special needs child in your Revocable Living Trust and eventually granting these children an inheritance, parent’s leave them ineligible for government help. For a child to receive health insurance through Medicaid, they cannot have more than $2,000 in personal assets. And help through any government funded assistance program means the child must have little personal net worth. It’s important for the child to receive health insurance through Medicaid even in affluent families. Not only does it provide a safety net when anything that could happen does happen, but it also facilitates access to certain services and machines. Some government agencies can reach durable medical equipment faster or more easily than private individuals.

Additionally, according to managing attorney Ike Devji, the inheritance left to a child runs the risk of “being eaten up by the state.” When determining the amount of aid needed, the state takes all assets into account. Before providing services to the child, the state uses up any inheritance in the child’s name – leaving little left for any needs outside the very basic costs of living. Fortunately, a Special Needs Trust makes it possible, in the event of the parents’ death, to continue providing the child with health insurance through Medicaid without abandoning their other needs. Assets in the trust will not count against the child. So while Medicaid, Social Security and/or assisted living help the child with living and health costs, the Special Needs Trust allows for a quality of life above the basic necessities. For many people, it’s like seeing money they paid into the tax system directly benefit their children.

The trust can be used to attend a special camp or pay for a special speech coach. Instead of an economical wheelchair, perhaps they can get that motorized one. The trust also keeps that money safe from the state as well as creditors. Once placed into the trust, assets are typically irrevocably gifted and as such are inaccessible to any future creditors of the parents. Basically, instead of listing the child as the beneficiary in any will, retirement account or legal settlement, the trust is listed. Often, people set the trust up with their life insurance flowing into it. From there it makes distributions to a third party. In essence, the trust pays people other than the beneficiary child for goods and services the child uses. From restaurants and swimming lessons to money allowing family and friends to accompany the child on trips, the trust gives financial stability to the child. It also allows them to secure vehicles and health insurance benefits for caregivers.

When it comes to setting up a Special Needs Trust, there are several reasons to start early. Not only does it keep those assets away from creditors, but it also helps ensure eligibility for government assistance. The state typically looks three years into the past. So a trust created within three years of an application for state aid counts against them. It may disqualify them completely from some benefits or require payment for others. Also, parents may continue to fund the trust throughout their life, facilitating a larger contribution.

Do note, once a child is over the age of eighteen, a successor trustee must be named. The parents are no longer the assumed guardians. Naming the wrong person as the successor trustee raises risks. For instance, they may put the child in a home and run off with the rest of the money. In choosing someone, Anderson advises, “You want to make sure your successor trustee is someone safe, reliable and with the child’s best interest in mind.” In many cases people choose an aunt, uncle or sibling of the child. Some advocacy groups for the disabled even employ professionals to serve as trustees. After choosing someone, speaking to the successor trustee is advised. And the parents may write letters of intent. The letter is not a legal document. It is, however, an expression of the parents’ wishes for the child. It can help the successor trustee by giving them instructions on how to care for the child. It generally consists of their health history, physician’s contact information, hopes and personal wishes and information.

Knowing parents won’t be around forever shouldn’t cause stress and fears of substandard living. Special children deserve a life of happiness and stability as much as anyone else. And with a little planning in advance, the Special Needs Trust can help make it happen.