Many parents consider leaving a portion or the entirety of their estate to their children and/or grandchildren. If you have a child or grandchild with special needs, extra attention is necessary when including them as beneficiaries in your trust.
If you’re a parent or grandparent of a special needs child, you have the opportunity to make a significant positive impact in their lives by including them in your estate planning. If you have other children, you can use your estate plan to equip them to care for their special needs sibling. A special needs trust is often the best way to secure a more financially stable future for your child or children.
How to Plan a Special Needs Trust
Trust planning is usually the most successful way that a parent or grandparent can leave funds for a special needs child.
When setting up a special needs trust, you must also name a successor trustee, which HerWealth names as one of the primary benefits of a trust structure. A trustee will manage the funds and make distributions after the grantor (you) becomes disabled or passes away. The trustee could be a family member. However, due to the longevity and complexity of trusts, many experts recommend selecting a professional trustee.
Even with a professional trustee, your family can still have input in your trust. You can allow this by naming a “trust protector” to review the investments and distributions, and make decisions regarding hiring and firing trustees. When planning your trust, you can also name a family member as a “trust advisor” or even have a trust advisory committee, which provides input about the needs of the lifetime beneficiary (your child or grandchild).
Extra Attention Required for Special Needs Trusts
The special needs trust could be part of a separate trust created by you as the parent/grandparent. Alternatively, it could be part of your revocable living trust. In either case, it’s essential that the trust is carefully worded to ensure that the funds can be used for the full benefit of the child or grandchild with special needs. Specifically, it’s imperative that careful consideration is given whether the trust can only supplement (and not supplant) government benefits, or whether the trustee could use the trust funds if determined best in the trustee’s sole discretion, even if doing so would reduce or eliminate government benefits. In general, we recommend allowing the trustee to have that discretion. Otherwise, a situation might arise where the beneficiary might need to use the trust money for a very valid reason, yet the trustee’s hands are legally tied so much that the money sits in the trust instead of helping the beneficiary as originally intended.
How to Fund a Special Needs Trust
One common way of funding a special needs trust is through life insurance. This method leverages available resources, especially in the case of an untimely death of a parent or grandparent. If you are a married couple providing for a special needs child, and you want significant funds to be available in the trust if both you and your spouse die, you might consider “second to die” life insurance. Generally, this will cost less than regular life insurance, and the beneficiary can receive funds exactly when they most need it.
Dangers of Not Planning a Special Needs Trust
Some parents exclude their child with special needs and leave their entire estate to their other children with the hope that the other children will use trust money to take care of the special needs child. Sometimes this plan works. But sometimes the other children receive the money and then die or become disabled themselves, or have creditor problems or lawsuits, or simply don’t want to share the money with their special needs sibling.
What if your special needs child is your only heir? Again, without proper planning, you can end up hurting rather than helping them. Receiving their inheritance all at once could mean that your special needs child could lose current government benefits such as SSI or Medicaid. If your child has significant medical bills each month paid largely by Medicaid (as many special needs people do), receiving an inheritance directly means that money will have to be spent unless it is put into a “first party” special needs trust.
Financial experts from CNBC say that the help of a qualified special needs attorney is a must when setting up a special needs trust. Do you have questions about how to successfully provide for your special needs child or grandchild? Our legal team is experienced in assisting families like yours in the St. Petersburg, Florida area. Call us at (727) 565-4250 or contact us online.
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