Many people are aware of the importance of making estate plans. Parents or guardians of minor children should make particular efforts to complete estate plans, if for no other reason than to appoint guardians for the children to make sure that the children are cared for.
Parents of children with special needs may be particularly concerned about the care of their children after the parents pass away, as children with special needs are often financially dependent on parents after reaching legal adulthood. Incorporating a special needs trust into an estate plan can be one way that parents can ensure that their children will be financially secure after the parents' deaths. Special needs trusts leave money available for the care of a child or adult with special needs without rendering him or her ineligible to receive benefits such as Supplemental Security Income, Medicaid and state benefit programs because the beneficiary of the trust does not actually own the assets. As such, the assets do not count in the calculation of the beneficiary's income for benefit qualification purposes.
The three most common types of special needs trusts are first-party trusts, third-party trusts and pooled trusts. First-party trusts are funded with the beneficiary's own money, such as a court settlement or a gift. A third-party trust is funded by assets belonging to a person other than the beneficiary, such as a parent of a person with special needs. The government can take any assets that remain in a first-party trust when the beneficiary passes away for repayment of disability benefits the government issued, but may not do so with a third-party trust, which is why it is important to distinguish which of these two trusts a person is setting up. A pooled trust is funded by the assets of several people combined.
Setting up such trusts, administering them and deciding how much funding to put in them can be quite complex. Those interested in special needs trusts should speak with an experienced trust attorney for guidance about their individual circumstances.
Source: The Financial Times, "Estate Planning Guide for a Special Needs Child," Sonya Stinson, July 10, 2013