It’s your money, so you should get to decide where it goes. If you have a disabled or special needs child, you probably want a significant portion of your estate to go towards their care. There’s a catch here that leaves many families in an unpleasant situation, however. Leaving your hard-earned assets to your child may cause more harm than good.
Programs such as Supplemental Security Income (SSI) or Medicaid that are meant to help the disabled have strict asset and income guidelines. If your child goes over those guidelines, even by a single dollar, they can lose eligibility and find themselves without any monetary or medical assistance.
That’s where a special needs trust comes in handy and how utilizing an estate planning attorney can protect your family from financial hardship down the line.
What Is a Special Needs Trust?
To put it simply, a trust is a legal agreement for one person to hold and distribute assets on behalf of another person. A special needs trust is specifically designed to provide for a disabled or mentally ill child when their caregiver or parent passes away.
These legal agreements are also sometimes called supplemental needs trusts. They are meant to supplement your child’s income and enhance their quality of life without fully replacing benefits like Medicaid or SSI. There are two main types of special needs trusts to know about:
- Self-settled trust
- Third-party trust
A self-settled trust must be created by a child’s parent, guardian, or a court and consists of the child’s own assets—such as the proceeds from a personal injury settlement for the accident that resulted in a child’s disability. If your child already has significant monetary assets but may need to use Medicaid or SSI in the future, this type of trust can be helpful in maintaining eligibility for those programs.
A self-settled trust has a significant drawback, however, as it can make it more difficult to protect assets from going to the government. These trusts feature a Medicaid payback provision. Under the rules of that provision, the remaining assets in the trust must be paid back to Medicaid after your child passes away.
A third-party trust avoids the Medicaid payback provision entirely, but the assets placed in the trust must come from someone else. Typically, those assets would come directly from you as the child’s parent or guardian.
An experienced North Carolina estate planning attorney can help you understand the difference between the two types of trusts and decide which will work better for your family’s needs.
How a Special Needs Trust Works
Assets placed in either kind of special needs trust don’t count towards the income limits of programs like Medicaid. Those assets don’t have to consist solely of cash, however. Real estate, stocks and bonds, and other assets can be placed in the trust.
A trustee is then appointed to distribute those assets under terms you decided on when the trust is created. The trustee is legally responsible for following your wishes and ensuring your special needs child is cared for using the assets placed in the trust. When combined with a program like Medicaid, a special needs trust is an excellent method of ensuring your child is cared for when you are no longer available to help.
This kind of trust should be part of your overall elder law plan to be prepared for the future but may become necessary even while you are young. Even if your child doesn’t currently utilize Medicaid or SSI, you should consider the possibility that they may need to rely on those programs in the future.
Let Us Help With Your Estate Planning and Trusts
Wondering if a special needs trust might provide some peace of mind about providing for your child after you are gone? Contact us for a free 15-minute consultation to get started and find out how our skilled estate planning team can help protect your assets and your child’s future.