Having a child with special needs brings on many new challenges, even for the most experienced of parents. But one of the less discussed challenges is the mechanisms that can and should be used to offer the best possible financial support to your special needs child. The financial challenges go beyond simply being able to afford to offer support and they can be confusing to sort through if you’ve never had to do it before.
We’ll discuss these unexpected challenges more in depth below, but we’ll also introduce you to an important tool: the special needs trust. This is a type of trust that is designed to offer your special needs child financial support in a way that won’t mess with any of their benefits. Let’s dive into how they function.
How Does a Special Needs Trust Function?
A special needs trust is a kind of legal and fiduciary relationship that allows you to offer somebody that is mentally or physically disabled financial support without changing their personal finances in a way that would damage their eligibility for various assistance programs.
It functions much like any trust does. The person that creates it is called the grantor, the person that manages is the trustee, and the beneficiary is the individual it has been set up to assist. Assets and funds can be transferred into the special needs trust. The trustee would then be in charge of distributing the funds and making sure they go towards the beneficiary’s medical costs, nursing costs, and other important life costs.
Special needs trusts are irrevocable trusts. This means that once they are made they cannot be modified or changed without the beneficiary’s permission. They are also safe from creditors. A special needs trust ends upon the beneficiary’s death, so they can live beyond the life of the grantor; this is something parents should keep in mind, because it means a special needs trust can continue to help your special needs child when you no longer can.
Why Wouldn’t I Just Give My Special Needs Child Money Instead?
There are actually several reasons why it is a bad idea to give your special needs child money personally when compared to using a special needs trust in order to give it to them. But the primary reason for not just giving them money is that it can interfere with other benefits that they qualify for.
Often, to qualify for benefits, an individual has to go through a means test. The idea with this is to determine whether they are capable of paying for their own needs or whether they will require assistance in order to live successfully. Many with special needs are not capable of working for themselves, so assistance programs are one of the major tools for affording treatment, food, housing, and the like.
When you give your special needs child money, that affects their means. Say you want to leave them $20,000. With assistance, that could help them to last for quite a few years. But by giving them that money, you change their means, and this can unintentionally push them out of qualifying for their benefits. Worse yet? That $20,000 now lasts for a much shorter period thanks to the lack of benefits.
Other reasons that it can be better to use a special needs trust include:
- You can feel secure knowing the funds will go towards what they’re allocated for
- A trustee can manage the funds, should it be something the beneficiary cannot
- A special needs trust continues to function after you are gone
- The terms of the trust are defined when it is created, so you can take the time to create the special needs trust that is perfect for its purpose
- The funds in a special needs trust are separate from those of the beneficiary, so creditors cannot come after them and they can’t be lost due to a lawsuit
- Because the funds in a special needs trust must go towards what the trust stipulates, they can’t be spent on frivolous things
What Can a Special Needs Trust Be Used to Fund?
The most obvious thing that special needs trusts are used to fund is necessary medical care like medications and home care. Additionally, it’s a good idea to use a special needs trust if the beneficiary is going to require placement in any kind of live-in facility, as it can help to insulate their funds from the facility.
But this is far from the only thing that a special needs trust can be used to fund, they can also be used to provide funding for:
- Medical equipment
- Educational training and classes
- Items that would enrich their lives
- Activities that would enrich their lives
- Living expenses
- Travel expenses
- Food and other necessities
- Health insurance premiums
- Rent, mortgage payments, or the cost of living at a live-in facility
- Trips to see friends, family, and to engage their interests
- Adaptive modifications needed for home, work, or travel
It’s important to remember that many of the things that give life meaning and joy cost money. If the special needs beneficiary cannot work, then adding clauses and allocating some funds towards activities and items that will enrich their lives may be the solution. A special needs trust can help in affording many aspects of life, especially those that make it enjoyable, and not just medical costs and those that are a necessity due to their condition.
How Do I Set Up a Special Needs Trust?
Setting up a special needs trust can be a difficult process. You want to ensure that you consider every possible need that the beneficiary could have. On top of that, you want to be sure you consider the costs of maintaining a special need trust, as well as pick the right trustee, and a dozen other important factors. If that sounds like a lot to handle, it’s because it is. But an experienced special needs trust attorney can help you to get started and ensure you come away with a trust that does everything you want it to.