Special/Supplemental Needs Trust: Does My Disabled Child Need One?

Special/Supplemental Needs Trust: Does My Disabled Child Need One?

When any person is putting together a will or a trust, the most important goal is to ensure that the trust provides the greatest benefit and management of the assets. What many people may not realize is that sometimes simply giving a gift directly to an heir can actually be harmful to them. This is especially true when the heir is a disabled person, regardless of whether they are a minor or an adult.

The reason for this is that disabled individuals are often receiving government benefits which can include Medicaid and other supplemental financial assistance. Medicaid and many of these other programs are often needs based. What that means is that the government will calculate the assets and income of a disabled person to determine the amount of their government assistance. If a disabled person were to inherit a massive amount of wealth it would be considered to be income and assets. This loss of assistance can be very costly as that can be thousands of dollars that the individual would otherwise have qualified for and no longer can, due to their inheritance.

Special needs trusts help to get around these situations. Special needs trusts allow for the money or property held within them to be put towards the care and maintenance of a disabled person without replacing the benefits they would otherwise receive from Medicaid and other government benefits. There are two major types of special needs trusts; a self-funded special needs trust and a third-party special needs trust, also often referred to as a supplemental needs trust. A self-funded special needs trust is funded using the assets and income of the disabled person.  A third-party special needs trust a.k.a supplemental needs trust takes the assets and income of another person and funds the trust with that. This is what would be used if you wish to pass money and assets to your disabled child without risk of reducing their public benefits.

In creating a supplemental need trust you would establish who the disabled person is, and you would select a person or organization to serve as trustee. Once you have established the beneficiary and trustee you can outline specific rules and regulations for how the money should be administered.

You can be the trustee of your child’s trust during your life but you should always have one to two trustees in place so that, upon your death, the trust can still be administered to your child without interruption. The money contained in this trust must be used for the sole benefit of the disabled beneficiary and cannot be used for any other purpose. Gifts to family and friends, paying for vacations, and similar distributions must be done in separate trusts and documents. If there is suspicion of ineligible transfers and distributions being done in a special/supplemental needs trust, it can create a risk that the trust will not be considered a special/supplemental needs trust and thus all assets contained within it will be counted against the disabled individual as personal income and assets, which may reduce their eligibility for government assistance.

Often, supplemental needs trusts are established in a will or in an existing trust where the whole of the property is kept, the main trust then distinguishes what is to be distributed to the supplemental needs trust and the rules of the supplemental needs trust will outline how that money is to be used for the benefit of the disabled person. The main trust and the supplemental needs trust may or may not have the same trustee managing them.

A special/supplemental needs trust is a vital tool for ensuring your disabled child is properly cared for and is not at risk of losing their government assistance by receiving property from you upon your death.

If you have a disabled child who you would like to ensure is cared for after your death, consider calling the Law Offices of Andrew Szocka P.C. at 815-455-8430 or by emailing us at info@szocka.com. We are a well-established Crystal Lake firm with extensive experience in wills, trusts, and all aspects of estate planning. We would love to meet with you and discuss your long-term goals for your family!

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