When a person has a disabled child, they want their child to live as independently as possible in the family home. If possible, they may want their child to work, because that is likely their child’s dream.
This article discusses the ability families have to preserve this benefit, which gives the disabled person access to medical benefits while providing them with the ability to live as independently as possible — perhaps even in the family home.
A special needs trust can be contained within a revocable living trust or created as a separate trust, enabling other family members to contribute either through their living trust or by making annual gifts. It can hold life insurance benefits, 529 plans, and can receive IRA benefits in a manner that allows the IRA to be stretched out over the lifetime of the beneficiary. One of the greatest advantages of a special needs trust is that it can be used to provide for many things.
The SSI benefit is specifically designed to provide for food and shelter — the trustee of a special needs trust can buy other items for the beneficiary, such as wheelchairs, vans, toiletries, and computers, as well as pay for caregivers, without any reduction in the SSI benefit. If the trustee provides food or shelter, the SSI benefit will be reduced, but not eliminated. This year, providing shelter through a special needs trust reduces the benefit $231.
It is critical that a family with a disabled child avoid a few common estate planning mistakes. If a family establishes a Uniform Transfers to Minors Act account, for example, then the child will be entitled to the funds, and their benefits can be reduced or eliminated or worse — the child could burn through the money too fast on frivolous things.
Likewise, if the beneficiary receives an inheritance, they will lose benefits until the inheritance is spent unless it can be converted to an exempt asset.
A special needs trust must meet specific requirements in order to protect the disabled beneficiary. The trustees selected must understand how public benefits work and how to make distributions in a manner that will not reduce or eliminate benefits, and the trust may be designed in a manner so that it can be dissolved if it becomes unnecessary.