Many people worry about how their passing will impact their loved ones. For those who have children with special needs, ensuring their child’s financial security often becomes an additional worry.
But, never fear: There are ways to secure your child’s future without compromising their government benefits or giving up your retirement funds. A special needs trust, a type of living trust, can help bring you peace of mind and provide income for your child for years to come.
How the trust works
A special needs trust usually involves three people: the donor (that’s you), the beneficiary (your child), and a trustee. The trustee is responsible for ensuring the funds in the trust are used appropriately, such as purchasing things for your child’s home and paying for any special care they need.
Types of special needs trusts
A few of the common types of trusts used for the benefit of people with special needs include:
- Third-party special needs trusts
- Pooled asset trusts
- ABLE accounts
Third-party special needs trusts are funded by someone other than the beneficiary, usually a parent. Many non-profit organizations manage pooled asset trusts, which pool the assets of many beneficiaries and invest them together. Finally, ABLE accounts, named for the Achieving a Better Life Experience Act of 2014, are managed by the state using after-tax dollars.
The benefits of a special needs trust
A special needs trust provides two primary benefits to a child with special needs:
- Financial security
- Protection of government benefits
If your child cannot manage their own finances, a trust can help them retain financial independence while also protecting them from people who might take advantage of their situation.
Plus, the beneficiary of a special needs trust can retain their government benefits, such as SSI or Section 8 housing because the government does not count funds in a trust as income. Government benefits are meant to provide the basics someone with special needs requires. The trust, on the other hand, can provide funds for recreation, vacations, home furnishings, and other comforts.
Parents benefit from professional guidance
While special needs trusts can sometimes be independently drafted using online resources, consulting with an attorney can help parents ensure their trust is valid. Some special needs trusts require specific wording, which an estate planning attorney can help you draft.