If one of your children has a disability, then you're already familiar with the daily challenges of caregiving. However, you might not have started thinking about what your child will do when you're not around anymore. People with disabilities may not be able to care for themselves.
One method of providing for your child after you pass away is by setting up a special needs trust. The trustee holds assets for the beneficiary, in this case, your child.
How Do You Set Up a Special Needs Trust?
People with disabilities may be able to receive government aid through Medicaid and other programs. Some of these programs provide food, housing, and medical care. As part of that assistance process, the disabled person must provide proof of income and assets. An inheritance would be considered income.
A special needs trust works in a specific way. The fund must be set up specifically so the trustee has complete financial control. The trustee will disperse funds to your child. This way, the funds in the trust won't be considered income and your child will still be able to receive government assistance.
If the disabled individual is receiving free food and housing through the fund, then the trust shouldn't be used for these needs. If the funds are used this way, then your child will be ineligible for that kind of aid from the government.
What Types of Special Needs Trusts Are There?
One of the most common trusts is the supplemental care special needs trust. In this case, the parents use their own money to set up the trust. With this type of trust, anyone except the disabled person can contribute money to the trust fund.
A pooled trust is similar, in that, parents and family members can contribute funds. The biggest difference, though, is that a non-profit organization sets up and manages the trust. The association invests the funds and pays out to the beneficiary. The big benefit of a pooled trust is you don't have to invest a lot of money. The non-profit association will usually handle smaller accounts.
Considerations for the Special Needs Trust
A special needs trust can benefit anyone who has a disability. If you're worried about your child's ability to manage finances, then a special needs trust is a good option for your family.
While it's possible to name anyone as a trustee in most types of trusts, it's generally advised to set up an institution such as a bank. For one, the bank will remain objective when distributing funds. Additionally, you don't have to worry about the individual passing away - the bank will always have a representative.
If you're not worried about losing government assistance because the trust is enough to provide for all your child's needs, then the funds from the trust can be used for almost anything, including housing, food, and medications. However, typically, special needs trusts are used for items specific to the person, such as alternative medical treatments and special furniture.
Funds from the trust are also used to provide a high quality of life for your child. The funds can be used for entertainment, beauty treatments, massages, or anything that your child enjoys. Indeed, as part of the trust-building process, you should provide as much information about your child's likes and habits to ensure the trust will provide them with the life they're used to.
Like any other parent, you want what's best for your children. If you have a child with a disability, part of your estate planning should include setting up a special needs trust. The experts at Brown Raduazo & Hilderley PLLC have experience setting up such trusts. Give us a call today to learn more about our services.