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Should you just leave an inheritance to your special needs child?

Most Michigan parents who have special needs children work tirelessly to provide and care for their children. They often give up much of their lives and resources for their children without question or hesitation. If you are one of those parents, you may also want to ensure your child's continued support after your death.

However, you should think twice before leaving an inheritance directly to your child. Most special needs children receive, or could receive, much needed assistance through government agencies. Whether that support comes in the form of money or programs, he or she must meet certain qualifications in order to receive benefits. The value of your child's assets often comes into play, and exceeding a certain threshold could jeopardize your child's receipt of benefits.

So, how do you provide for your child without impeding access to government benefits?

A special needs trust could provide the answers you seek. Correctly drafting this type of trust could help ensure that your child remains eligible for government assistant after you are gone. Any inheritance you intend for your child goes into the trust. This means that you child does not actually own the assets, which could keep him or her from exceeding the monetary requirements for benefits.

Two types of special needs trusts

Creation of a special needs trust occurs under the following conditions:

  • First-party: Those who create this type of trust often became disabled after becoming an adult. The assets in the trust come from a personal injury claim or an inheritance. When the beneficiary of the trust (who may also be the one who created it) dies, any remaining assets of the trust reimburse the appropriate government agency.
  • Third-party: The assets in this trust come from another source such as parents. Unlike a first-party trust, any assets that remain in the trust after the death of your child do not need to reimburse the government.

The wording of a special needs trust must comply with certain laws and regulations. In addition, the assets may only benefit your child in certain ways. For instance, distributions from the trust may cover certain expenses such as the following:

  • The trust may pay for your child's educational needs.
  • The trust can purchase a phone or other electronics such as a computer for your child.
  • The trust can purchase luxury items such as clothing and other extras for your child.
  • The trust may also provide for care services such as in-home care.

Essentially, the assets of the trust cover any expenses not covered by government benefits such as Medicaid. When it comes to these expenses, the trust must pay the merchant or service provider directly. A distribution to your child could disqualify him or her from receiving benefits even if the money ultimately goes toward payment of the goods or services.

Whomever you choose as trustee of the trust needs a clear understanding of its terms. Even innocent mistakes could jeopardize your child's access to government benefits. Therefore, carefully consider your choice of trustee.

Legal assistance

You wouldn't trust your child's future to just anyone. In that same vein, you shouldn't trust the creation of a special needs trust to a do-it-yourself form. Everyone's situation varies, even if only slightly. It is not likely that the needs of you and your child will fit into check boxes or fill-in-the-blank forms.

Considering what's at stake, you would probably benefit from involving an attorney in your estate-planning endeavors, especially if you intend to create a special needs trust. Your attorney will understand the crucial elements of these trusts and will assist you in drafting and executing a trust that will meet with the scrutiny of the courts and government agencies.

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