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Is a Special Needs Trust Right for Me?

Do I Need a Special Needs Trust? 

There are many considerations to make for parents with special needs children who are thinking about establishing a special needs trust. The answer tends to be “yes,” more often than not.

Without a correctly configured special needs (or supplemental needs) trust, your child is at risk of losing government benefits, such as SSI, or state-based aid for persons with disabilities.  Special needs trusts can allow for supplemental/extra care above and beyond what the government already may provide, without putting governmental benefits in jeopardy.

Therefore, if you have a Special Needs child, it is worth it to consult your attorney about setting one up as soon as possible.

“My family is well off and we’re not too concerned about government benefits.  Why even bother creating a Special Needs Trust?”

Even if your family is doing well right now, and you are able to completely provide for your special needs child now, there is no guarantee that this will still apply in the event of something happening to you or your spouse. Other types of trusts, such as a living trust, or family trust, also may not address your child’s specific needs due to the interplay between benefits and governmental services.

The monies and properties you place in a Special Needs Trust are not subject to creditors or seizures resulting from lawsuits, so it can protect the trust assets for when your special needs child need them.

Even if your family is well off now, and you don’t seem to rely on government benefits for your child, nobody can know what tomorrow holds. A special needs trust is an ideal vehicle that may protect your child’s future.

“If having money causes problems for my disabled child, why can’t I just leave that money to his sister so that she can look after him?”

While this may seem like common sense especially in those families that have a loving sibling, leaving money to them in order to look after your special needs child may open up the proverbial Pandora’s Box.

A Special Needs Trust is an irrevocable trust and as such, it affords a measure of protection against creditors, judgments, etc.  If you were to leave the money to a sibling, that sibling may go bankrupt or get sued.  In that case, the money you ear mark for your special needs child would be exposed.

Furthermore, because of the way Community Property laws work in the State of California and other states, if the sibling gets divorced, the money you earmark for your special needs child may be taken by the former spouse of the sibling that you’ve given the money to.

Also, asset transfers are usually considered “transfer for purpose of benefit qualification.”  A 30-60 month look back period may apply, thereby disqualifying your disabled child for benefits for up to 5 years if you try to transfer money without a special needs trust.

For all these reasons, even if you are fortunate to have another child who is willing to care for your disabled child after your death, you would still be advised to create a special needs trust.

“When should I create a special needs trust?”

A Special Needs Trust needs to be established before your disabled child becomes 65 years of age.  While this may seem like a long while away, parents with special needs children are advised to create a special needs trust while their children are still young.

It is common practice to establish a special needs trust for a young child as a part of a larger estate plan established by the parents.  It is very advisable for all parents with young children to create a proper estate plan.  Doing so will protect your children in many ways.

Young children, whose parents pass away will have guardians appointed to them by the court after their parents’ death.  However, parents may, with the help of an estate planning attorney, elect guardians for their children, ensuring that their children will NOT be split up and that those people that they trust will raise their minor children.

Furthermore, it is impossible to predict the future and if a child does not have a special needs trust in place and both parents pass away suddenly, any insurance payments, annuity payouts, retirement account payments that are earmarked for the special needs child may disqualify that child from benefits.  Establishing a special needs trust now creates a good vehicle for these and other third party monies, such as personal injury settlements, bequests from others, and other payouts.