When you’re the parent or guardian of a child with special needs, planning for their long-term well-being, especially after you’re gone, can be a primary concern. A Special Needs Trust (SNT) is a crucial tool in ensuring that your child remains financially stable and retains access to necessary services and benefits. Here’s what to consider when setting one up:
1. Purpose of the Trust: An SNT is specifically designed to provide financial support to a beneficiary with disabilities without jeopardizing their eligibility for government benefits, like Medicaid or Supplemental Security Income (SSI).
- Lesson: Understanding the purpose and benefits of an SNT is crucial for making informed decisions.
2. Types of Special Needs Trusts: There are different types of SNTs, including:
- Third-Party SNT: Funded with assets that never belonged to the person with disabilities, usually from parents or other family members.
- First-Party SNT: Funded with the beneficiary’s assets, perhaps from an inheritance or a legal settlement.
- Pooled Trust: Managed by non-profit organizations, combining assets from various beneficiaries but maintaining separate accounts for each.
- Lesson: Determine the right type of SNT based on the source of funds and the specific needs of your child.
3. Choosing a Trustee: The trustee is responsible for managing and disbursing the trust’s assets. It’s essential to select someone trustworthy, knowledgeable about the beneficiary’s needs, and capable of managing financial resources.
- Lesson: You can choose a family member, a professional trustee, or a combination of both to ensure proper management.
4. Funding the Trust: Think about the resources your child will need for their lifetime. Factor in medical expenses, caregiving, housing, education, and recreational activities. Life insurance policies, real estate, or other financial assets can be used to fund the trust.
- Lesson: A financial planner can assist in determining the required amount and best funding methods.
5. Providing Guidance: Include a “Letter of Intent” with the trust. This isn’t legally binding but provides invaluable guidance for the trustee regarding your child’s preferences, needs, routines, and care requirements.
- Lesson: This letter ensures your child’s needs are met in the manner you envision.
6. Medicaid Payback Provisions: First-party SNTs usually have a requirement that, after the death of the beneficiary, any remaining assets be used to repay the state for Medicaid services received. Understand these stipulations to avoid surprises later.
- Lesson: Work with an attorney to ensure compliance with all legal requirements.
7. Regularly Review and Update: As with all estate planning tools, it’s essential to review the SNT periodically. Changes in laws, family circumstances, or the needs of the beneficiary may necessitate adjustments.
- Lesson: Setting regular reviews ensures the trust remains current and effective.
Setting up a Special Needs Trust is an act of love and foresight. It ensures that your child continues to receive the care and support they deserve, even in your absence. Given the complexities and specific legal requirements of SNTs, working with an attorney (call us at (916) 437-3500) experienced in special needs planning is critical to your success.
This collaboration will help in establishing a robust, comprehensive trust that serves its purpose effectively and provides peace of mind for the family.
- Planning for the Care of a Disabled Adult Child - October 1, 2023
- Navigating the Emotional Side of Estate Planning - September 29, 2023
- The SECURE Act – the Gift That Keeps On Giving - September 27, 2023
