Estate Planning and Tax Lawyer Blog

If you have a special-needs child who is developmentally disabled and/or incapacitated, then your child might be receiving government support, for example Medicaid or Supplemental Security income. Many of these government programs have asset and/or income tests. If during your lifetime, you gift money to your special-needs child or leave property outright through your will or revocable living trust after your death, your child will immediately be disqualified from their government benefits. But if you leave the child’s inheritance in a special-needs trust, it will not be counted against your child for his or her government benefits.

The trust should be written in a way to pay for things that are not covered by the governmental benefits. The assets in the trust will be used for non-necessities or other items that will not be covered by the governmental benefits. The trustee of the special-needs trusts would have discretion to distribute the money for the additional or special needs, which could include vacations, television, field trips, eating out in a restaurant or going to see a play. While these special-needs trusts can be set up by including provisions in your revocable living trust, it is better to have a stand-alone special-needs trust. It is also possible to set up a special-needs trust and transfer your child’s assets into the trust if your child is in the situation where he or she has been disqualified from governmental benefits due to a gift, inheritance or personal injury award. There must be a provision included in the trust that will reimburse the government benefits from your child’s own money upon their death. Your child will have a happier and more enriched life if you prepare by creating a special-needs trust.

To read more on this article, visit Planning Matters: Special-needs trust protects child's assets.