If you are the parent of a child with special needs, a well drafted and comprehensive estate plan is particularly important to ensure that your child is protected and provided for, both now and in the future. Like all parents, you undoubtedly want to continue providing financial support to your child long after you are gone. Simply gifting assets to your child in your estate plan though, however well intentioned, could cause more problems than it will solve. One way to ensure that your child is provided for in your estate plan without creating additional problems or issues is to establish a special needs trust. Understanding what a special needs trust is, and how your child can benefit from one, is a good place to start.
The Cost of Care
Raising a child with special needs is typically more expensive than raising a child without special needs. As a parent, however, you would like to ignore the costs and simply focusing on loving your child. It becomes more difficult though to ignore those costs as your child approaches adulthood because in the eyes of the law your child will become legally independent. Depending on your child’s abilities, he or she may be able to live a fairly independent life once he/she reached adulthood; however, it remains more than likely that your child will continue to need assistance from state and federal programs such as Medicaid, Supplemental Security Income (SSI), and subsidized housing. You may also wish to continue to contribute to your child’s care and maintenance. Your desire to continue to contribute, however, could actually jeopardize your child’s eligibility for those state and federal assistance programs.
Understanding Needs Based Assistance Programs
Programs such as Medicaid and SSI are referred to as “needs based” programs because eligibility for benefits is based, at least in part, on the “needs” of the applicant. To qualify — or to retain benefits — an applicant’s/beneficiary’s income cannot exceed the program limits as an adult. In addition, the value of an applicant/beneficiary’s countable resources cannot exceed the program limits. While your child’s income from his/her job may not threaten to exceed the program limits, as soon as you (or other well-meaning family and friends) start giving your child money or assets your child’s eligibility may be jeopardized. The same potential problem applies to gifts made in your estate plan. The bottom line is that making direct gifts to your child can have unintended negative consequences, regardless of where or when the gift is made.
The Desire to Contribute
While most parents hope to be able to leave their children an inheritance when they are gone, for the parents of a child with special needs it is more than a simple desire to contribute. Even though your child may continue to be eligible for assistance, the assistance provided, coupled with your child’s earnings from a job, may fall short of providing a comfortable living for your child as an adult. In addition, if your child continues to need specialized — meaning expensive — medical treatment and/or equipment, your continued financial support may be the difference between getting that treatment/equipment and doing without.
How a Special Needs Trust Can Help
A special needs trust, also referred to as a “supplemental needs trust”, is a specialized type of trust that will allow you to gift assets to your child without jeopardizing his/her eligibility for assistance programs. The trust assets may be used to supplement the care provided by federal and state programs; however, there are strict rules regarding what the assets may, and may not, be used for so care must be taken when using assets held by a special needs trust. In addition, specific language must be used in the trust agreement in order for the trust to be recognized as a special needs trust by federal assistance programs. Given the important role a special needs trust could play in your life, and that of your child, along with the need to include the right language in the trust agreement, it is wise to have your North Carolina estate planning attorney draft the trust agreement for you.
If you have additional questions about a special needs trust please contact the experienced estate planning attorneys at Kulas Law Group, P.A. by calling 772-398-0720 to schedule an appointment. In addition, please download a free copy of our “Solid Estate Plan Checklist.”