Providing for Your Special Needs Child
Help for Parents of Special Needs Children
Parents of special needs children share a common concern. How to continue providing for their special needs children after both parents have passed away? A carefully drafted estate plan can avoid disqualifying the special needs child from receiving Medicaid, Social Security and other government program benefits. There are estate planning tools you can use such as a Special Needs Trust.
Generally, a person must have less than $2,000 in non-exempt assets to qualify for certain government programs. If a parent left their property to a special needs child, it could disqualify the child from receiving much needed resources. In Texas, those resources include several Medicaid programs, such as the Star Plus Waiver, Community First Choice, Primary Home Care, and Day Activity and Health Services.
Special Needs Trust
One way to provide for your special needs child after you pass away is to create a Special Needs Trust. It can prevent disqualifying your child from government programs. A special needs trust avoids transferring assets directly to the special needs child. However, it ensures the child benefits from the assets you leave in the trust.
How to Create a Special Needs Trust
To create a special needs trust, you can simply create one in your will. This is called a testamentary special needs trust. You can state in your will that any property your special needs child receives under the will shall be placed in the trust. You could also state that you leave specific property to the trust for the benefit of your child with special needs.
One advantage of a testamentary trust is that you do not have to put any money into the trust while you are living. Therefore, you are not denying yourself the use of any assets you may need to care for your special needs child during your life. The parents of a special needs child are not the only persons who can create or fund a special needs trust. Once the trust is created, the child’s grandparents or sibling can also leave assets to the trust for the benefit of the child.
Parties to a Special Needs Trust
Although your child will be the beneficiary of the trust, you will still need to name another person as the trustee. The trustee will be responsible for managing the property in the trust and distributing the proceeds for the benefit of the special needs child. Instead of allowing the child direct access to the trust funds, you should give the trustee discretion to distribute the property. The trustee should also consult with an attorney to ensure they understand how the trust funds can be used. The settlor, the person creating the trust, should state in the will who should receive the trust property upon the death of the special needs child, e.g. beneficiary.
How to Use Special Needs Trusts
Third Party Trusts
A third-party trust, such as a special needs trust, is created by one person for the benefit of another person. The trustee can use the proceeds of the trust to pay third party vendors, e.g. cable company, cell phone company, or to purchase a specially equipped van or other items for the benefit of the special needs child. The value of the property in the trust does not affect the qualifications for Medicaid.
First Party Trust
First party trusts, on the other hand, involve an owner of the assets, e.g. settlor or grantor, placing property into the trust during their lifetime for the benefit of themselves. These trusts can be used to lower the value of the owner’s assets, so the owner can qualify for state programs. It may also be appropriate if the individual is currently on public benefits and expects to inherit property or receive a personal injury settlement that would disqualify them from these programs. Unlike a third-party trust, a first party trust is required to reimburse Medicaid for expenses after the death of the beneficiary.
Requirements of Special Needs Trusts
First Party vs. Third Party
There are specific requirements associated with special needs trusts. For example, the third-party trust can be either revocable or irrevocable. However, a first party trust needs to be irrevocable. Irrevocable simply means that once it is created, the trust cannot be cancelled and the property cannot be returned to the owner.
Either trust can be created during the settlor’s lifetime. But a third-party trust can also be created at the time of death. Another advantage of a third-party trust in your will is that it can be revoked any time before your death. This can be done by revoking the will. A revocable testamentary trust should not cause a hardship for the person creating it because no money or assets are required to be placed in the trust until the person who created it dies.
Role of Trustee
The trustee must be given discretion to distribute the property for the beneficiary. In other words, the beneficiary cannot have the authority to access the funds in the trust. If that were the case, then the beneficiary may be deemed the owner of the trust assets. That could disqualify the beneficiary from state programs for exceeding the minimum assets allowed. Trustees should consult with an attorney to ensure they do not inadvertently jeopardize the beneficiary’s ability to qualify for benefits.
Definition of Disabled
The beneficiary of the special needs trust must meet the legal definition of “disabled” as set forth in 42 U.S.C. 1382c(a)(3)(A). The statute defines a disabled person as a person who is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death, or which has lasted or can be expected to last for a continuous period of not less than twelve months.
How to Fund the Special Needs Trust
When the trust is established by your will, it is called a testamentary trust. You do not have to fund this type of trust during your life. However, you may wonder what assets you will be able to provide to the trust if you do not have piles of cash on hand.
One option is to use the funds from your life insurance policy. Once you have drafted a will with a trust, you can change the beneficiary on your life insurance policy to the trust that is set up for the benefit of you special needs child.
Another option is to leave real estate or benefits from your retirement plan to the trust. It is important that the beneficiary does not deposit any of their own money into the third-party trust because doing so could cause the beneficiary to be deemed the owner of the trust property and/or the trust to be deemed a first party trust. First party trusts can prevent the special needs child from qualifying for government benefits and must be used to reimburse Medicaid for expenses after the beneficiary passes away.
It is important you discuss your specific circumstances with an experienced estate planning attorney to ensure your special needs trust is set up properly. Contact the Law Office of Hugh Spires, Jr. at www.TexasWillsLawyer.com to start your special needs trust today.