Special Needs Trusts & Planning
A special needs trust is the cornerstone of broader special needs planning. Specials needs children and their families need more than help with therapists and schooling. They need holistic planning that requires both legal and financial expertise. By structuring a legal plan for financial and custodial support, your child’s world will be maintained and protected when you die . . . now or many years from now.
We call it parenting when you’re gone. We are thorough and thoughtful in how we set up this structure. So you’ll have that peace of mind that your child will survive and thrive in your absence.
The structure for this plan is a special needs trust. But it is so much more than simply checking the box for a specials needs trust in the estate planning software many attorneys use. It requires a true understanding of the financial aspects, including ABLE accounts and all public benefits available to those with disabilities and special needs. As a public speaker, Ellen Cookman teaches others how to approach this planning for families with special needs children, much like her own. Our knowledgeable team can set up every aspect of the legal structure for such a plan, starting with a specials needs trust.
What is a Special Needs Trust?
Determining whether you need a special needs trust is driven by public benefits. A disabled child can qualify for certain needs-based public benefits once he or she turns age 18. These benefits include Supplemental Security Income (SSI), an income stream, and Medicaid, a federal health insurance program (called Medi-Cal in California). To qualify for these programs, the disabled child must have under $2,000 of countable assets, and must be unable to work due to the disability.
How can a loving parent leave an inheritance to a child, when that child can only have $2,000 to his or her name? By setting up a special needs trust for that child. This type of trust can hold any amount of money for the child, and the money is to be used for the child’s benefit. However, someone else manages the money for the child, and the child cannot revoke or amend the trust. Because the child has no direct control over the money, it does not count as the child’s money for public benefits purposes. This allows the child to remain under the $2,000 limit and continue to receive needs-based public benefits.
Estate planning for disabled child with mild disability
Some children may be diagnosed with a disability. However, it may be unclear whether such a disability will render the child unable to work. In that case, is a SNT needed? It depends. For example, consider a younger child with high-functioning autism. Early intervention could really help the child’s chances to succeed in life. The child might just need some extra support with social interactions in order to hold down a job. For situations such as these, we often recommend including a “toggle switch” in the parents’ revocable trust. If it appears the child is unable to work and support himself or herself at the time of distribution (i.e. when the parents are deceased), the child’s inheritance “toggles” to a special needs trust for the child’s benefit.
If at the time of distribution it appears the child can work and support himself or herself, the child receives his or her distribution in a different type of trust, such as a lifetime trust.
Another example is a teen or adult with mental or emotional health challenges. These types of diagnoses often develop later in life. It is difficult to know whether the adult child will progress with being able to work. Likewise, we don’t know if the child will ever qualify for needs-based public benefits. Those with mental health challenges may do well for a period of time, then suffer a setback when, say, medications are changed. We typically advise maintaining a special needs trust for these situations. Once the money is distributed outright, it is difficult to get it back into a protective SNT again.
Special needs trusts for wealthy families
If your family has a sizeable estate of $5-10 million, you may be able to fund your child’s estate yourself. In this case, does it make sense to set up a special needs trust to maintain needs-based public benefits?
The answer (as with most legal questions) is: it depends. There are some services that are only available to a child receiving SSI and Medi-Cal, even if that child is paying out-of-pocket for the services. To qualify for placement in many high-quality group homes or day programs, the child must be receiving public benefits. This tends to argue in favor of establishing a SNT.
In addition, it may be essential to have someone else manage your child’s assets, as your child cannot manage his or her own assets. In such a case, maintaining a SNT is very similar to maintaining a lifetime trust such as a Dynasty Trust. The trust must be drafted properly, and cash distributions should not be made. Otherwise, the management of the trust is very similar. So you would not does not lose much by setting up a special needs trust for your child.
Funding special needs trusts
How you fund a special needs trust is determined by your assets, including investments, retirement funds, inheritance and real estate. You may be wealthy enough to fully cover the expenses of your special needs child. Alternatively, you could supplement with insurance. Various options for insurance coverage include second-to-die, or survivorship life insurance, term life insurance, whole/variable life insurance.
Part of what we do with special needs planning is determine the impact of each of these choices. How assets will be distributed to your heirs (and special needs child) is a critical choice. Our goal is to minimize the impact on the public benefits for your child and preserve an asset, such as a home.