Parents of a child with a disability are often faced with challenges as they plan for their child’s future. Depending on the circumstances, the child may not be able to work or otherwise provide for themselves when they reach adulthood. While the child may be able to qualify for government programs to help finance their care, these programs require that the recipient have very little personal wealth to maintain their eligibility. Fortunately, with careful planning, parents can provide for their child’s future while allowing them to continue to receive needed benefits. Here is some basic information about Special Needs Trust and how they may work for your circumstances.
What is a Special Needs Trust?
A special needs trust is a type of trust which can be set up to provide funds for the care and maintenance of a person with certain types of disabilities. These trusts are set up in a way which allows them to be funded but not be considered countable assets when the beneficiary is seeking to qualify for or maintain their eligibility for governmental assistance programs. The purpose of the trust will be stated in the trust document and should direct that the beneficiary receive funds for specific purposes. It is essential that the trust language direct payment appropriately as there are particular rules about what this kind of trust may be used for. For instance, the trust cannot be used to benefit another person besides the beneficiary or for their food, but it is permissible that the funds can be used to pay for the beneficiaries non-covered medical expenses, education, recreation or massage services. The trust will be managed by a named trustee who will be responsible for dispensing payment from the trust for the benefit of the beneficiary.
Type of Special Needs Trusts
There are two kinds of Special Needs Trusts. One type of Special Needs Trust is a “first-party trust” or “self-funded trust” which is funded with the resources of the beneficiary or assets which the beneficiary is entitled to receive. An example would be if a child inherited their parent’s estate and the funds of the estate were placed in a Special Needs Trust for them. The other type of trust is a referred to as a “third-party trust.” This type of trust is funded with assets which do not belong to the beneficiary. Examples of third-party trusts would be one funded by parents of an adult child with a disability, either while they are still alive or after they are gone. A critical difference between these trusts is that the funds in a third-party trust do not have to be used to reimburse the government for their services when the beneficiary dies. However, a first-party trust would be reachable for repayment for government services after the beneficiary dies. That’s one of the main reasons to make sure you take action to plan as early as possible.
If you are a loved one of a child with a disability, a special needs trusts can be a valuable tool in planning for the child’s care. When carefully and properly drafted this kind of trust can serve to supplement governmental program benefits and ensure your loved one has the quality of life you want for them.
When preparing a Special Needs Trust it is important to consult with an experienced estate planning attorney to ensure your trust document meets all applicable requirements and serves your loved one’s best interest. Our office has experience helping families plan for their future and can help. Please contact us online or by phone if we may be of assistance. https://www.michiganestateplans.com/contact/.