Estate planning by parents who have children with special needs involves many challenges. How do you leave funds for the disabled child without losing disability benefits? How do you ensure that the funds are properly managed? How do you make sure there’s enough money meet the disabled child’s lifelong needs?
Attorney Leticia Martinez guides families through the special needs planning process and works with families to create customized plans that ensure the protection of their loved ones.
The Solution: Special Needs Trust
Special needs trust fulfill two primary functions. The first is to manage funds for a disabled person who cannot do it on their own. The second is to maintain Social Security disability benefits. It’s a trust that one person creates and funds for the benefit of someone else. A trust is a relationship between three parties. The donor supplies the funds. The trustee administers the funds according to the donor’s wishes. A beneficiary receives the benefits of the funds. Specifically, a special needs trust is tailored to the person with special needs and designed to manage assets. It can be a first-party, third-party or pooled trust.
The reason why there are several different types of special needs has to do with regulations regarding Supplemental Security Income (SSI). In order to qualify for SSI, a beneficiary can only have $2,000 in his or her name. Often, an inheritance or an accident settlement disqualify the disabled person for SSI. These types of monies or assets are protected from the government in a special needs trust. Special needs trusts are beneficial for those disabled ones who come into large amounts of money and are receiving SSI because the trust allows them to retain benefits while being able to use their own funds when needed. These types of trusts must be created by the beneficiary’s parent, grandparent or court. While the beneficiary is living, the funds in the trust are used. However, when the beneficiary dies, the funds remaining in a first-party trust are used to pay back the government for medical care.
The Third-Party Special Needs Trust
The third-party special needs trust is the most common used by parents and other family members. These trust can hold any kind of asset, including real estate, stocks and bonds. It functions like a first-party trust in that assets held do not affect qualification for SSI. But there’s another benefit to third-party trusts. It does not contain the payback provision found in first-party trusts. When the special needs beneficiary dies, the remaining funds can be passed to other family members without having to be used to pay back the government.