A special needs trust is a common way for parents to prepare for the future care of a child with special needs. The child can use the proceeds from a special needs trust to pay for certain purchases and services that government benefits won’t cover, such as transportation, computer equipment, and household furnishings. Parents can supplement their child’s future financial needs by using a special needs trust.
At the same time, a third-party special needs trust, or a special needs trust established by a parent or other third party, has various advantages. First, the trust, not the child, owns the assets. As a result, the special needs trust does not endanger the child’s eligibility for crucial government benefits such as Supplemental Security Income (SSI) and Medicaid. Another benefit to this type of special needs trust is that the law does not require its proceeds to be made payable to Medicaid once the child passes away. This type of special needs trust is different than a self-settled or first-party special needs trust, which contains assets that the child owned, in that Medicaid recovery is mandatory for any remaining assets in that trust following a child’s death. Therefore, with the third-party special needs trust, parents can ensure that any remaining proceeds are donated to charity or used for any other purpose specified by the settlor or the third party who established the trust.
Inheritances
In many cases, a special needs trust contains no substantial assets until after both parents of a child with special needs have passed away, or in some cases, if grandparents pass away. Any inheritance to go to the child, whether left to the child by parents, grandparents, or other relatives, can be paid directly to the trust, so long as the bequest is set up to pay to the trust rather than the child. This technique safeguards the child’s eligibility for needs-based public benefits while still allowing them to care for the child’s future financial needs.
An inheritance is not limited to a bequest in a will or a revocable living trust. Some accounts have named beneficiaries; these assets are not distributed via the probate process after a person’s death. As a result, parents can make life insurance policies, retirement accounts, and investment accounts all payable to a child’s special needs trust following their deaths. Likewise, they can attach “payable-on-death” provisions to bank accounts, which direct the bank to pay the proceeds of a particular account to the special needs trust.
The trustee, whom the parents named when they created the trust, has sole control over managing and disbursing the trust assets. The beneficiary of the trust, or the child with special needs, can only benefit from the funds in the trust with the approval and guidance of the trustee to ensure that the funds are only spent on permissible items.
Gifts
Grandparents, parents, and other family members can also make gifts to the trust annually or periodically. However, it should be noted that as a “future interest gift” such gifts do not qualify for the annual gift tax exclusion to make gifts to family members each year to reduce their taxable estates. Likewise, grandparents may need to reduce their assets to qualify for Medicaid benefits to fund skilled nursing home care. This situation may require them to dispose of all their assets before becoming eligible for benefits. One way for grandparents to avoid losing all their assets is to contribute the funds to a special needs trust, which, unlike most gifts, will not trigger a “look-back” penalty when considering Medicaid eligibility.
Again, rather than making a significant monetary gift directly to a child with special needs or putting the funds in a regular savings account that belongs to the child, the relative should make the gift to the special needs trust to benefit the child. The trustee then can disburse the funds as needed to benefit the child.
Contact Us Today to Learn More About Special Needs Trusts
Rubin Law is the only Illinois law firm to dedicate itself exclusively to providing compassionate legal services for children and adults with special needs. We offer unique legal and future planning techniques to meet your family’s individual needs.
Call us today at 866-TO-RUBIN or email us at email@rubinlaw.com to learn more about the services we can offer you and your family.
