As a settlement planner, I often come across parents of disabled children. Not surprisingly, a 2011 study found that the greatest concern for parents of children with special needs is financial well-being.
It can take a tremendous effort on the part of the entire family to provide for a child with special needs. If the finances aren't there, the family may need to rely on government benefits to provide the necessary medications and equipment to support the disabled child. Establishing a Special Needs Trust can protect the family from disqualification of government benefits and ensure that the child's needs are taken care of long-term.
What is a Special Needs Trust ("SNT")?
A Special Needs Trust (sometimes referred to as a Supplemental Needs Trust) is designed to allow a disabled individual under the age of 65 to have access to property (e.g. real estate, finances) while protecting their present and future eligibility for Medicaid. It can be set up privately or by court order; in either scenario, a trustee must be appointed to administer the trust.
What can SNTs cover?
SNTs are not designed to provide everyday support, but are instead meant to cover needs that may not be covered by government benefits. These expenses may include:
*Funds can be used for these expenses if the trustee determines this is in the beneficiary's best interest, despite a possible reduction in public assistance.
For the families of catastrophically injured children, this can provide the assurance that long-term benefits will be accessible, including in-home nursing, attendant care, and/or facility care.
How to set up a SNT
There are a lot of moving parts that go into creating a Special Needs Trust, so I hesitate to over-simplify the process. That being said, there are four major steps involved:
- Identify a comprehensive settlement planner: Great settlement planners know the ins and outs of SNTs. They can answer questions along the way and help guide parents through each step of the process.
- Select a trust attorney: As most states have their own body of law governing Medicaid, it is important to choose a trust attorney with experience in adhering to the legal regulations associated with SNTs. Tom Begley, for example, is a great source of information and expertise on this topic.
- Establish a fiduciary relationship and vet potential trustees: Selecting a trustee can be a difficult task. Whether a family member, friend, or corporate trustee is chosen, it is important that s/he understands the responsibility that comes with serving as a trustee, and acts in the best interests of the disabled child.
- Strategize appropriate funding options: Funding options can include annuities, savings, stock/mutual fund investments, real property, and/or retirement accounts.
Let's say you are the parent of a child who receives a settlement as the result of a catastrophic injury. We might recommend a blended approach of a SNT with a structured settlement annuity. A portion of the settlement would be invested into the trust, which would be available for immediate access and a portion of the settlement would fund a structured settlement annuity, which would deposit future tax-free periodic payments into the trust. This balances the child's immediate financial needs and future necessities.
Parents must weigh heavily the potential benefits that may be needed long after they are gone. Special Needs Trusts can be a valuable tool for providing lifelong financial security for disabled children and their families.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).