If you have a child with special needs, you may worry about their future financial stability. Depending on their challenges, they may be unable to hold a steady job and will need Supplemental Security Income (SSI) to survive. Yet, you may feel that these monthly benefits will not allow them to do so with ease. In this case, creating a special needs trust could prove worthwhile. But it’s important to understand how to do so without harming your child’s eligibility for SSI and Medicaid.
Issues of eligibility
For your special needs child to qualify for SSI and Medicaid as an adult, you must prove that their total assets do not exceed $2,000. Or, you must provide evidence that they do not have access to assets greater than that amount. A special needs trust, though, does not put their eligibility for these programs at risk, so long as its distribution is narrow. Since the trust is not in your child’s name, it does not qualify as an asset of theirs. But if the trust distributes a broad income to your child – one causing their available assets to exceed $2,000 – they may become ineligible for benefits. While narrow distribution may seem limiting, it will ensure your child has enough money to survive without losing crucial assistance.
Setting up a trust
Forming a special needs trust comes with challenges beyond benefit eligibility. For one, you will need to appoint a qualified trustee who understands the complexities of disability regulations. Furthermore, you must decide which trust arrangement makes the most sense for your family. If your child will come into a significant amount of money in the future, you will want to set up a first-party special needs trust for them. This trust will protect your child’s access to benefits in the event of an inheritance or windfall. Upon your child’s death, any remaining funds in the trust will reimburse the government for Medicaid benefits. Yet, many families opt for a third-party special needs trust. This arrangement makes sense if multiple people are funding the trust. And it’s also popular because any assets in the trust pass down to other family members or beneficiaries instead of reimbursing the government.
Setting up a special needs trust comes with plenty of complexities. Yet, it’s worth the difficulty because it will help your child thrive as an adult. Working with an estate planning attorney can help you establish an arrangement that protects your child’s future.