When parents have a child with special needs, they will have unique concerns for the future well-being of their son or daughter. Particularly, the parents may worry about what will happen to the child in the event that both parents die or become incapacitated. This is where a special needs trust can help.
A special needs trust is a way for parents to create a plan for the future care of their children who require special attention. The primary reason people use these trusts is because they allow children to continue receiving government benefits while also receiving extra financial disbursements from the special needs trust.
How does a special needs trust work?
If parents were to leave money, assets or a sizable life insurance policy to their child with special needs, the receipt of these assets would immediately disqualify the child from receiving government benefits. Essentially, the child would then have to deplete the inherited assets before qualifying for Social Security benefits again. By placing the assets into a special needs trust, the trust will be the owner for the assets rather than the child — thus permitting the child to receive certain financial benefits from the trust without disqualifying the child for Social Security.
Specific rules will apply to a special needs trust. However, the funds in the trust can be used for a wide array of purposes
- Purchasing a vehicle
- Insurance premiums
- Dietary needs
- Spending cash
- Athletic events
- Gift purchases
- Paying for a companion
- Items to increase self esteem
- And many other expenses
How to create a special needs trust
Parents usually set up their special needs trusts within their estate plans. Even parents without a significant amount of assets to fund their special needs trusts can create a generous trust for their child by funding the trust with a life insurance police. Also, if a disabled individual is set to inherit significant assets, but the parents didn’t create a special needs trust, the disabled individual can create a special needs trust him- or herself. Considering the many benefits of a special needs trust, parents may want to learn more about this vital estate planning strategy.