Parents of a disabled child often worry how to set up an estate plan that provides an inheritance without disqualifying the child from valuable government benefits. Estate planning trusts can be designed to help a special needs beneficiary without sacrificing Supplemental Security Income or Medi-Cal, the California Medicaid program.
Qualification for SSI and Medi-Cal benefits is dependent upon income. A disabled beneficiary who comes into even a modest inheritance can be dropped from the programs for exceeding low income requirements.
Special needs trusts allow parents to establish a safe haven for assets that do not count against a child’s income-sensitive benefits. A third-party special needs trust houses assets owned by the trust. A disabled child’s government benefits cannot be penalized because the beneficiary does not own or control the assets.
A trustee is assigned to manage the assets on behalf of the special needs beneficiary. The trust may not provide the child with cash since that would be considered disqualifying income. The trust can be used to supply services including education and even housing for the disabled beneficiary without breaching benefits’ guidelines.
Parents with limited financial resources may consider a pooled trust. Assets are grouped together with other grantors under a single trust. The trustee is a nonprofit organization working for the good of all beneficiaries rather than one.
A first-party special needs trust is also an option for beneficiaries who receive income. Legal settlements or damages, gifts or other assets belonging to the disabled child fund the trust. Assets in first-party trusts may threaten benefits’ eligibility or be claimed by the government upon the beneficiary’s death.
An estate-planning attorney can answer questions about special needs trust options, the choice of a suitable trustee and trust-funding strategies. Due to legal complexities, parents are not advised to attempt to create a special needs trust without an attorney’s help.
Source: thefiscaltimes.com, “Estate Planning Guide for a Special Needs Child” Sonya Stinson, Jul. 10, 2013