Special Needs Trust

Typically, a physical or mental disability may qualify a person for government benefit programs, such as Social Security or Medicaid. Since these programs are administered only to those who financially qualify, gifts or inheritances must be planned very carefully so they will not interfere with the disabled beneficiary’s eligibility for government benefits. Setting up a special needs trust is one way to help pay for the challenges associated with raising a disabled child, while still preserving government benefits.

Considering Assets To Place In Special Needs Trust

A special needs trust must be set up to supplement, not replace, any available government benefits. The trust can provide a way to pay for items and services beyond the basic necessities of medial care, room and board, or personal needs normally funded by government benefit programs. It can be funded by a parent’s assets, or in the event of a legal settlement for personal injury, the child’s assets. The provisions of the trust should meet with the child’s long term needs. This raises a difficult challenge of identifying how the child’s life might unfold in terms of a career or lifestyle.

Naming A Trustee For A Special Needs Trust

When developing a special needs trust, a trustee must be appointed to administer the trust assets to the intended beneficiary. Typically, a family member is chosen to serve as trustee. A bank or social worker could also serve. Because funds cannot be distributed directly to the child with disabilities, the trustee is in charge of distributing funds to third parties to pay expenses for that child. Therefore, when a person agrees to become the trustee, that person assumes a fiduciary duty to act in the best interests of the disabled child in terms of distributing trust assets. A trustee can be sued for violating that fiduciary duty.

Placing The Trust Inside A Will Or As A Separate Document

A special needs trust that is included in a will is called a testamentary trust. It is established at the death of the person creating the trust, pursuant to the will. Trust assets will not be available until they are transferred to the special needs trust. Stand-alone special needs trusts are established while the person creating the trust is still alive. The main advantage of a stand-alone special needs trust is that the trust can receive assets from multiple persons wishing to help provide for the well-being of the special needs child. Assets in a stand-alone trust are always accessible to the trustee.

There are many challenges and rewards associated with raising child with mental or physical disabilities. Planning for a child’s care and well-being, both during the parent’s lifetime, and more importantly, after the parent’s death, involves complex legal issues.

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and an attorney licensed in Ohio and Kentucky who helps clients with their financial planning. He also practices elder law planning, estate planning, and Medicaid planning in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky. Please contact him to determine if a special needs trust is necessary for you or a loved one.