I am always surprised when the parents of a child with special needs tell me that they were not aware of what they needed to do to ensure the future well-being and care of their child. Often, they tell me they didn’t know they needed to do anything at all.
If that’s you, and you have a child with special needs at home, this is for you (or, if you have friends or family who have a child with special needs, please share this article with them.)
Every parent who has a child with special needs must understand what’s needed to provide for the emotional, physical, and financial needs of their child, if and when something happens to them.
Of course, the first and most critical step is to name both short and long-term legal guardians to take custody of and care of your child, in the event of your death or incapacity. As you well know, this responsibility doesn’t end at age 18, if your child will not grow into an adult who can independently care for him or herself.
While we understand this lifetime responsibility may feel overwhelming to you, parents always tell me that naming legal guardians in writing and knowing their child will be cared for in the way they want, by the people they want, creates immense relief.
We frequently build in plans where the named guardians are properly instructed—and even incentivized—to give your child the same care you provide. For example, we’ve created plans whereby the named guardian is compensated for taking the child to dinner and the movies weekly, or doing something similar if this is something the child used to enjoy doing with his or her parents. But without written instructions built into the plan, enriching activities like this can often go by the wayside when you’re no longer available. We can provide you guidance on selecting legal guardians and properly instructing them to provide your child with special needs the same level of care and attention you do.
Beyond naming a guardian, you’ll also need to provide financial resources to allow your child to live out his or her life in the manner you desire. This is where things can get tricky for children with special needs. In fact, it may seem like a “Catch-22” situation. You want to leave your child enough money to afford the support they need to live a comfortable life. Yet, if you leave money directly to a person with special needs, you risk disqualifying him or her for government benefits.
Special Needs Trusts
Fortunately, the government allows assets to be held in what’s known as a “special needs trust” to provide supplemental financial resources for a physically, mentally, or developmentally disabled child without affecting his or her eligibility for public healthcare and income assistance benefits. However, the rules for such trusts are complicated and can vary greatly between different states, so you should work with an attorney in order to create a comprehensive special needs trust that’s properly structured and appropriate for your child’s specific situation.
Setting up the trust
Funds from a special needs trust cannot be distributed directly to a beneficiary and must be disbursed to a third-party who’s responsible for administering the trust. Given this, when you initially set up the trust, you’ll likely be both the “grantor” (trust creator) and “trustee” (the person responsible for managing the trust), and your child with special needs is the trust’s “beneficiary.” You’ll then name the person you want responsible for administering the trust’s funds once you’re no longer able to as “successor trustee.” To avoid conflicts of interest, overburdening the named guardian with too much responsibility, and to provide checks and balances, it can sometimes be best to name someone other than your child’s guardian as trustee. As the parent, you serve as the trustee until you die or become incapacitated, at which time the successor trustee takes over. Each person who serves as trustee is legally required to follow the trust’s terms and use its funds and property for the benefit of the individual with special needs. And in all cases, you should name a series of successor trustees, which can even be a bank, trust company, or other professional fiduciary, as backups to your primary named trustee.
Placing money and property into a special needs trust
There are two ways to set up a special needs trust. In one situation, we build it into your revocable living trust, and it will arise, or spring up, upon your death. From there, assets that are held in your revocable living trust will be used to fund your child’s special needs trust.
In other cases, we can set up a special needs trust that acts as a vehicle for receiving and holding assets for your child now. This makes sense if you have parents or other relatives who want to give your child with special needs gifts sooner rather than later.
Once the trust is funded, it’s the trustee’s job to use its funds to support the beneficiary without jeopardizing eligibility for government benefits. To handle this properly, the trustee must have a thorough understanding of how eligibility for such benefits works and stay current with the law. The trustee is also required to pay the beneficiary’s taxes, keep detailed records, invest trust property, and stay current with the beneficiary’s needs. Given this huge responsibility, it’s often best that you name a legal or financial professional who’s familiar with the complexities of the law as trustee or co-trustee, so they can properly handle the duties and not jeopardize eligibility. If you need help creating a special needs trust for your child, contact us. We can develop a sustainable living plan for your child with special needs that will provide her or him with the financial means they need to live a full life, while preserving their access to government benefits.