If you have an adult child who has a disability, you may want to use your estate plan to continue to provide financial resources for your son or daughter after your death. Giving cash, property or other assets directly, though, may be a mistake.
Many government programs, like Supplemental Security Income, require recipients to have minimal financial resources. Fortunately, there may be a practical workaround. With a special needs trust, you provide funds to your disabled child without sabotaging his or her eligibility for government help.
Qualifying for needs-based assistance
Instead of giving money directly to your disabled child, a special needs trust holds funds for his or her benefit. Consequently, funds in the trust are not usually income for purposes of qualifying for many types of needs-based assistance. For certain expenses, your son or daughter may use the fund while remaining eligible for entitlement programs.
Using trust funds properly
There is a caveat, though.
If your son or daughter uses trust funds to pay for the same expenses that government financial assistance covers, he or she may no longer be eligible for help. Therefore, your child may only use disbursements from the special needs trust to pay for supplemental expenses.
The following are usually acceptable uses of special needs trust funds:
- Housing modifications, copays and out-of-pocket medical expense
- Travel, recreational and athletic expenses
- Educational, training and vocational expenses
It is often difficult to use trust funds incorrectly, even inadvertently. After all, when you set up the trust, you designate a competent trustee who must approve all trust disbursements after carefully comparing them with needs-based program rules.