If you have an adult child who has a disability, you may want to use your estate plan to provide for him or her after your death. Still, if your estate plan gives assets directly to your child, he or she may become ineligible for means-tested government programs.
Rather than transferring ownership of assets to your child, a special needs trust holds funds for his or her benefit. Provided your son or daughter uses disbursements solely for supplemental expenses, he or she remains eligible for government help.
Essential parties
A special needs trust has three essential parties: the donor, the beneficiary and trustee. The donor is the individual who provides funds for the trust, while the beneficiary is the person who uses the funds. The trustee has a fiduciary obligation to oversee the trust, including investing funds and approving disbursements.
Supplemental expenses
Disbursements from the special needs trust should only cover expenses that supplement government funds. That is, the fund should not pay for basic living expenses and medical care, as public programs offer financial support for these costs.
Because government programs usually only provide meager financial assistance, the special needs trust may improve your child’s quality of life. He or she may use funds from the trust to cover housing modifications, out-of-pocket medical care, travel expenses and other supplemental costs.
Funding options
If you want to set up a special needs trust, you likely have some funding options. For example, you may place your personal assets into the trust. You can probably also fund the trust with life insurance or an insurance settlement.
Because the method you choose may have tax or other implications, consulting with a financial planner may be an important part of your estate planning process.