One of the most difficulties in having a child with a disability is the fear of the unknown. One of the most common fears is, “What will happen to my child when I die?” Having a plan will help ease your fears and can help make sure your child is taken care of long after you have passed.
Benefits of Setting Up a Special Needs Trust
There are three main benefits that come from setting up a trust for your child with a disability. The first is financial management. Most people with disabilities are unable to manage their own finances which can put them at risk of being taken advantage of.
The second reason to set up a trust is the money that comes from the trust won’t be counted by the government as income. This makes it possible for people with disabilities to still qualify for SSI or Medicaid.
Another great benefit of setting up a special needs trust is the money is not required to go through probate court. Probate court is a legal process that oversees the distribution of property, money and other assets once a person has died. This process can be a very lengthy ordeal. Setting up a special needs trust allows the person receiving the money to have instant access to it.
Different Types of Trusts
There are two main types of trusts that parents can set up to help ensure their child with a disability will be taken care of financially after they have passed away. A first-party trust and third-party trust.
A first-party trust holds the assets that belong to the beneficiary (person with a disability). This type of trust does have a pay-back clause that states that any money left over after the beneficiary dies will go to the government to pay back any money the beneficiary may have used.
A third-party trust is controlled by a trustee rather than a beneficiary. The main benefit of this type of trust is that any left over funds after the beneficiary dies can be given to other beneficiaries such as siblings.
Strategies for Setting Up a Special Needs Trust
First, you need to decide what your goals are for the special needs trust. Do you have multiple children you are planning on leaving money to? Are they all receiving the same amount of money? Do you want a family member to help allocate the money? Meeting with a financial advisor is a crucial part in establishing a special needs trust. Based on your goals, they could recommend and set-up a special needs trust that is best suited for your family.
Another thing to remember is that life is constantly changing. Visit your estate planning often (every 3-5 years) to ensure that things are in-order for you and your child with a disability.