Parents with a special needs child understand better than most people the importance of preparing for the future. When they can no longer financially or physically care for their child in direct ways, they have options to ensure their child is still taken care of. One of these options is a special needs trust.
What is a Special Needs Trust?
A trust is a legal arrangement in which an individual or financial institution, referred to as the trustee, possesses and manages assets for the beneficiary’s benefit. Trusts have documentation that detail:
- The extent of the trustee’s authority
- How the trust will benefit the beneficiary
- How and when the trust will end
A special needs trust is one meant for an individual with disabilities. In most cases, owning assets valued more than $2,000 would cause someone to be ineligible for certain public benefits. However, assets held in a special needs trust don’t count toward this amount. This preserves the beneficiary’s eligibility for needs-based government benefits, including Supplemental Security Income (SSI) and Medicaid. Since the beneficiary doesn’t own the trust’s assets, they are still eligible for benefit programs with asset limits.
Even if the child isn’t currently receiving benefits or won’t in the future, parents might still want the money protected from:
- The child’s potentially risky or frivolous financial choices
- Anyone who might attempt to take advantage of them
With a trust, the parents get to select a trustee to help manage the assets in it and make distributions to the special needs child to supplement their lifestyle outside what public benefits provide. The parents can determine how much money can be withdrawn, when it can be withdrawn, and for what purposes.
What Limits Do Special Needs Trusts Have?
One of the most challenging aspects of planning for a child with special needs is determining how much money is needed to provide for the child, both during the parents’ lifetime and after they are gone. While calculating and determining these figures can take much time and effort, the good news is that a special needs trust has no limits when it comes to how much you can place in it. There are no caps, so you don’t need to worry about staying below a certain limit.
Other Considerations for a Special Needs Trust
Usually, the trust isn’t funded until the parents both pass away. Then the trustee will need to file a tax return each year on behalf of the trust and pay any required taxes. Parents setting up a legal trust also need to consider that there will be legal and trust administration expenses. Even if the parents choose a family member as the sole trustee, it’s often advised and necessary that the trustee consult annually with an attorney to ensure that the beneficiary’s benefits aren’t at risk in some way.
When determining how much money to place in the special needs trust, parents also need to consider that many of the roles they filled will need to be paid positions after they pass—for example, advocacy and care coordination roles. Other factors to consider include:
- Inflation
- The potential that the child’s level of care will increase
Careful planning with the help a trusted California elder law attorney can help ensure that you set up a special needs trust that will run smoothly and benefit your child to the greatest extent possible.