If you have a disabled child, you probably provided in-depth care throughout his or her childhood. Now that your son or daughter is approaching adulthood, you may worry about continuing to offer the same level of support. After all, you are not going to be around forever.
Your adult child may qualify for government assistance, such as Supplemental Security Income or Medicaid. If you gift money, however, your son or daughter may not meet the income-based eligibility requirements for these programs. Forming a special needs trust may be the right approach.
Understanding the purpose of special needs trusts
Because giving money directly to your son or daughter is likely to interfere with his or her eligibility for government benefits, you need a workaround. With a special needs trust, money ownership does not transfer to your child. Instead, it remains in trust for the benefit of your son or daughter. Consequently, trust funds are usually not income for purposes of needs-based benefits.
Using funds from a special needs trust
Because your disabled child likely cannot work, he or she may use needs-based government assistance to pay for ordinary expenses. Supplemental Security Income, for example, likely covers food, housing, utilities and clothing. Unfortunately, these meager benefits may not leave much for other expenses. Disbursements from the special needs trust can pay for travel, medical copays and other supplemental items.
Choosing a special needs trustee
While the primary goal of special needs trusts is to enhance the beneficiary’s quality of life without rendering him or her ineligible for government benefits, there is another advantage to this type of estate planning. When you create the trust, you name a trustee to oversee disbursements and investments. Because the trustee has a fiduciary duty, he or she must protect both your wealth and your child’s interests.
With a special needs trust, you ensure your disabled child has the financial support necessary to navigate adulthood. Though you may not be able to care for your disabled son or daughter forever, this type of trust may be a ready option for achieving peace of mind.