How to Provide for a Child with Special Needs
How to Provide for a Child with Special Needs
By: Wilmington Trust

Children with special needs may be eligible for Social Security (SSI) and Medicaid benefits, which could be a blessing when it comes to paying for long-term care and medical expenses. Furthermore, the caregivers of these children might feel confident that additional money from a personal injury settlement or inheritance ensures that the child's other requirements will continually be met. There is, however, a potential problem with this optimistic projection.

Government guidelines specify that if the child accumulates over $2,000 in assets, he or she could lose the valuable government benefits. Consequently, he or she would have to spend down the funds before the payments could resume. And parents who think about leaving the disabled child's portion to another family member might worry that the money may not be used as planned, or may even be lost due to divorce, bankruptcy, or mismanagement.

To help families provide financial assistance for disabled children without jeopardizing SSI or Medicaid benefits, Congress authorized the use of irrevocable, Supplemental Needs (or Special Needs) Trusts. The trust's payouts cannot duplicate government assistance, and thus cannot pay for a beneficiary's basic needs, for example, food, shelter, and medical care. Rather, they can be used for such things as out-of-pocket medical expenses, travel and vacation, and vehicle maintenance. Disbursements are not given directly to the beneficiary. Instead, they go to a third party who will pay for the goods and services. You can set up a Supplemental Needs Trust as long as you are the parent, grandparent, or legal guardian for a disabled person under the age of 65. The court also has the authority to establish the trust.

Funds can go into a Supplemental Needs Trust while you are living. Or you can include instructions in your estate plan that leave the disabled beneficiary's portion to the trust. You could also name the trust as the beneficiary of your life insurance policies and retirement plans.

A Supplemental Needs Trust requires a trustee to manage the assets, make distributions, and terminate the trust if laws change or if the government disputes the trust's validity. After the beneficiary dies, the trustee will handle the final distributions, including reimbursing the state for the medical assistance provided, and closing the trust.

Look for a trustee who has a long history of trust management, because the trust will probably be needed for many years. You should select an institution or individual who has good money management and financial skills since they will have unlimited discretion over how your child's funds are used. In many cases, however, corporate trustees offer distinct advantages over individuals.

Corporate trustees are always available. They do not die, get sick, quit, or need a vacation. In addition, they have extensive experience in trust administration, asset management, and tax and legal issues. Furthermore, corporate trustees are regulated and monitored by government agencies and have the financial strength and resources to protect your child.

Besides handling the distributions to purchase a handicapped van or pay other expenses, corporate trustees also have the ability to meet a child's special requirements. For example, they could work with consultants and builders to construct or retrofit a home with handicap accessible features, as well as provide a mortgage from the trust. Plus, they can help parents, who are overwhelmed by their situation, find an outside agency to assume much of the responsibility of caring for the beneficiary's physical and health needs. Corporate trustees could then manage the payroll services for private duty nurses and other care providers.

The definition of eligibility and the laws governing Supplemental Needs Trusts may differ from state to state. Therefore, you should work with financial and legal experts who have experience in special needs planning to ensure that your loved one's wellbeing will continue long into the future.

This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.

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