You have taken care of your special needs child since birth. You know how important it is to protect and support him or her. You've experienced firsthand the extra care needed. As you get older and begin the process of estate planning, you will likely want to set up a special needs trust for your child.
Special needs trusts differ from other types of trusts. They provide financial support that doesn't interfere with government assistance. The government doesn't count assets held in a special needs trust towards benefits like Medicaid and Security Supplemental Income (SSI).
This provides funds to pay for your child's needs that government benefits don't cover. A special needs trust can help ensure that your child can maintain a high quality of life without losing out on government benefits.
You have a few different options of special needs trusts. These options include:
- Third-party special needs trust - If you are using your money to set up a trust for your child, this is called a third-party trust. With this type of trust, you choose a trustee, typically a trusted family member or friend. The trustee controls the assets in the trust. Instead of giving money directly to your child, the trustee usually pays for your child's extra needs from the trust. This avoids disqualifying any government benefits.
- First-party or self-settled trust - If your child already has assets or has received money in a settlement, you can put those into a first-party trust. Putting assets owned by your child into a first-party trust keeps your child eligible for government benefits. In order to use this type of trust, it must usually be funded before your child is 65.
- Pooled trusts - Different nonprofit organizations offer pooled trusts. The nonprofits pool and invest money from multiple people. The amount of money you put in is held in an account in the pool. The nonprofit then acts as trustee, purchasing goods and services that government assistance doesn't pay for.
Setting up a special needs trust can be complicated. The special needs trust that makes sense for you and your child will depend on a variety of factors. You should always get legal advice when planning for your child's future. A good plan makes sure your child continues to receive the support and care he or she needs.