Creating a trust for a child with special needs is one of the most caring and helpful ways to ensure that they are taken care of in the future. Parents and guardians often worry about how their children will manage finances, medical needs, and other important aspects of life, especially if the child has a disability that may make handling money or resources challenging. A trust can offer security, help manage assets, and ensure your child’s needs are met in a way that doesn’t interfere with any government benefits they may be receiving.
Richard H. Cole
Partner
Thomas F. Hewner
Partner
Donna L. Haslinger
Partner
Vivian P. Roche'
Partner
Keith R. Rosso
Attorney
Tasha D. Frazie
Attorney
A trust for a child with special needs requires careful planning to make sure all the right details are in place. While it may seem complex, breaking down the process step by step can make it easier to understand. Knowing more about what a trust is, why it is beneficial, and how it can be set up can help you decide the best way to provide for your child’s future. At, Cole, Sorrentino, Hurley, Hewner & Gambino, P.C., we are here to guide you through the legal process and help you navigate the complexities of your case.
Understanding What a Trust Is
A trust is a legal arrangement where one person, called the trustee, manages money or assets for another person, called the beneficiary. In this case, the beneficiary would be your child with special needs, and the trustee would be someone you choose who will be responsible for handling the trust in a way that benefits your child. The trustee is given specific instructions on how to use the funds, ensuring that your child’s unique needs are prioritized.
When setting up a trust for a child with special needs, you want to make sure it is a “special needs trust” or “supplemental needs trust.” This type of trust is specifically designed so that it won’t interfere with government benefits, like Medicaid or Supplemental Security Income (SSI). Many government assistance programs have income and asset limits. If a child inherits a large sum of money outright, they may become ineligible for these benefits. A special needs trust is structured in a way that allows the child to continue receiving these essential benefits, while still having access to funds for other expenses that can improve their quality of life.
Benefits of Creating a Special Needs Trust
One of the main reasons to create a special needs trust is to make sure your child has financial security without risking the benefits that may be essential for their healthcare and daily needs. These government programs are often crucial for children with disabilities, covering medical expenses, therapy, and other necessary support. A special needs trust protects these benefits by allowing your child to have funds available for other important needs without going over the asset limits required by these programs.
A special needs trust can also offer peace of mind. Knowing that you have planned ahead and set up a structured way for your child to receive financial support can relieve the stress of wondering what will happen in the future. The trust can cover additional costs like recreation, education, or special therapies that improve your child’s quality of life but are not covered by government assistance. This way, your child can have a well-rounded life with support tailored specifically to their unique needs.
Choosing the Right Type of Special Needs Trust
There are two primary types of special needs trusts: a first-party special needs trust and a third-party special needs trust. Each one works slightly differently, so it’s important to understand which one is best for your child.
A first-party special needs trust is created using the assets that belong to the child, such as funds from a legal settlement, an inheritance, or savings that may be in their name. This type of trust is commonly used when a child with special needs receives funds that could otherwise disqualify them from government benefits. A first-party special needs trust must meet certain legal requirements and often needs to be approved by the court. When the beneficiary of a first-party trust passes away, any remaining funds in the trust must first be used to pay back Medicaid for any services the child received.
On the other hand, a third-party special needs trust is funded with assets that do not belong to the child. This is often set up by parents, grandparents, or other family members. Because the assets in a third-party trust never legally belong to the child, they are not subject to the same payback requirement. Any remaining funds after the beneficiary’s death can be passed on to other family members or used for other purposes as stated in the trust agreement.
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Selecting a Trustee
One of the most important steps in creating a special needs trust is choosing the right trustee. The trustee is responsible for managing the funds in the trust and using them for your child’s benefit according to the instructions you provide. It’s crucial to choose someone who is not only trustworthy but also understands your child’s needs and is capable of handling the financial responsibilities of a trust.
Many people choose a family member or close friend as a trustee. This can be a good choice if the person is reliable and understands the specific needs of your child. However, it can also be challenging, as managing a trust involves both financial and legal responsibilities. If a family member or friend might struggle with these responsibilities, hiring a professional trustee, like a bank or trust company, is another option. Professional trustees are trained to manage trusts and have experience in handling the specific rules associated with special needs trusts. The downside is that they usually charge fees for their services, which can reduce the amount of money available in the trust.
Another option is to have co-trustees, where a family member and a professional trustee share the responsibilities. This can be beneficial because the family member provides personal knowledge about the child’s needs, while the professional trustee brings legal and financial experience.
Funding the Trust
Funding the trust means putting money or other assets into it. There are several ways to do this, and you can decide based on what works best for your family’s financial situation. Life insurance is one common way to fund a special needs trust, as it allows you to set aside a significant amount of money that will only be used when it’s most needed.
Other sources of funding include savings accounts, investments, or even family contributions. Some parents also choose to add other valuable assets, such as property, to the trust. Deciding how to fund the trust can require some careful planning to ensure there will be enough resources to meet your child’s needs, both now and in the future.
Drafting the Trust Document
The trust document is the legal paperwork that sets out all the details of how the trust should be used and managed. This document should be drafted carefully, outlining instructions for the trustee, listing the types of expenses the trust should cover, and noting any restrictions on spending. The document can also detail who will inherit any remaining assets after the child’s passing if you have chosen a third-party special needs trust.
Since this document is legally binding, it is important to have it drafted properly. Working with a legal professional who understands special needs trusts can help ensure that all the requirements are met and that the trust will accomplish everything you want it to. They can help you include language that prevents the misuse of funds and protects your child’s eligibility for government benefits.
Reviewing and Updating the Trust
Life can change, and it’s essential to review the trust regularly to make sure it still meets your child’s needs. You may need to update the trust if there are changes in government benefit rules, your financial situation, or your child’s health and personal requirements. Reviewing the trust regularly with a legal professional can help you make sure it continues to work as intended.
Updating the trust may involve changing trustees, adjusting the assets in the trust, or revising instructions to better reflect any new circumstances. Being proactive in reviewing the trust can ensure that it remains beneficial and that your child will continue to be supported in the best possible way.
Getting Started with a Special Needs Trust
Starting the process of creating a trust for a child with special needs can seem overwhelming, but it’s a powerful step toward providing them with a secure future. Gathering information, making decisions about trustees and funding, and drafting the necessary legal documents will help you create a trust that meets all of your child’s unique needs. Each step in this process requires careful thought and planning, as the choices you make now will have a lasting impact on your child’s life.
Creating a special needs trust requires attention to detail and understanding of legal rules to ensure that your child will benefit from it without affecting other essential resources. The team at Cole, Sorrentino, Hurley, Hewner & Gambino, P.C. can help guide you through each step, offering support and legal insight to make this process easier. Reaching out to a legal professional can provide peace of mind, knowing that you are setting up a stable and secure future for your child.