Estate planning is an important step everyone should take to make sure their wishes are known and their assets are handled accordingly upon their death. For parents who have a child with special needs, estate planning is an essential tool that should be used to help care for your child.
Parents with a special needs child should have an estate plan that addresses how their child will be taken care of, including financially, after you pass away. Creating an estate plan is never easy as many people don’t like to think about their death but it is an important step to take for parents who have children with special needs.
People with special needs kids should create a special needs trust as part of their estate plan. A special needs trust can leave money to your child without it counting against their Medicaid and Supplemental Security Income benefits from the government.
There are a couple different types of special needs trusts that parents should be aware of. The most common type of special needs trust is a third-party or testamentary trust. This trust is intended for future use and does not require the trust to have funds in it when it is made. This can be helpful as parents may choose to use their inheritance or life insurance proceeds to fund the trust when they pass away.
Another type of special needs trust is a first-party or self-settled special needs trust, which is funded using the beneficiary’s assets from a gift or court settlement.
It is important to note that in first-party trusts, if the special needs dependent passes away and there is still money in the trust, the government can take the remaining assets. Third-party trusts do not allow the government to take any remaining assets.
There is also a third type of trust, a pooled trust. This is most commonly used by people who have limited assets because the creator of the trust pools their money with other people and the trust is handled by a nonprofit organization.
There are many benefits of creating a special needs trust but it is beneficial to discuss all the options with an estate planning attorney before making a decision on what kind of trust to create.
Source: The Fiscal Times, “Estate Planning Guide for a Special Needs Child,” Sonya Stinson, July 10, 2013