You may have a special needs child who is developmentally disabled or legally incapacitated. This child may also be on some form of governmental assistance such as Supplemental Security Income, Social Security Disability Income or Medicaid.
If you leave property outright to your special needs child through your will or your revocable living trust, those assets will usually disqualify your child immediately from their governmental benefits. Your child then would have to spend down all of his or her inheritance to nominal amounts before he or she could reapply for the governmental benefits.
However, when leaving an inheritance to a special needs child, you can have your cake and eat it too. If you leave the inheritance to your special needs child in what is generally called a special needs trust, the assets that you leave to your child will not be counted against him or her for the asset test for these governmental benefits.
Typically the governmental benefits provide for the basic necessities such as food, shelter, clothing and/or transportation. The assets in a special needs trust are used for non-necessities or other items that are not covered by the governmental benefits. The trustee would have sole and absolute discretion to distribute income and/or principal for those extra or special needs of your child. These special needs could include among other things, vacations, a TV, field trips, eating out in a restaurant or going to a play. These additional activities can enhance the life of your child.
The best protection for your child is generally a stand-alone special needs trust as opposed to special needs provisions within your revocable living trust. This stand-alone trust would have only the minimum provisions required to prevent the trust assets from being available for spend down. Any unnecessary provisions, such as those found in a typical revocable living trust, could be used by the governmental program administrators to disqualify the trust and count the assets as available for spend down.
But what if your child has already received an inheritance or a personal injury award and has been disqualified from governmental benefits? You child does not have to spend down all of those assets for his or her care and support before he or she can reapply for those benefits. There are specific provisions in the federal and state statutes and regulations that allow you to set up a special needs trust, usually by court order, and transfer all of your child’s excess assets into that trust.
This special needs trust is very similar to an inheritance special needs trust. However, if you are going to be using your child’s own money to fund the trust, you must include a provision in the trust that reimburses the governmental program benefits upon the death of your child.
With a special needs trust, you can have a happier child and enrich his or her life and make it more enjoyable and fulfilled.
By: Matthew M. Wallace, CPA JD
Published edited December 28, 2008 in The Times Herald newspaper, Port Huron, Michigan as: How to provide for special-needs children