Special Needs Trust
A supplemental needs trust (commonly called a “special needs trust”), was first made officially legal by Congress in 1993. This document allows any person with a physical disability, mental disability, or chronic illness to have unlimited assets.
The main advantage of this document is that none of those assets are factored in to how much in government benefits that person receives. If your child with cerebral palsy benefits from SSI, Medicaid, vocational rehabilitation, subsidized housing, or other benefits, he or she will not lose any of those when receiving assets from a special needs trust.
Each trust formed under one of these documents is its own legal entity and has a unique Federal Identification Number issued by the IRS. Under law, Congress has declared that such a trust must be irrevocable, which means it cannot be changed.
Who Should be the Estate’s Trustee?
While you are creating your special needs trust, you will have to appoint someone to manage and distribute the assets. This person is called the “trustee.” While trusts have the substantial advantages of avoiding probate court and helping your child with cerebral palsy keep his or her government benefits, the trustee you appoint is not accountable to anyone.
He or she can manage and distribute the assets placed in your estate as he or she sees fit. Although he or she must manage the assets of the trust in the way you stated, your trust simply cannot cover every situation. At some point, the trustee must exercise his or her best discretion.
Since he or she is not legally accountable to anyone, there is opportunity to mismanage the assets or not use them in the best interest of those they are intended to benefit. You can designate anyone to be your trustee. However, the ideal trustee will:
- Be someone you know well and trust highly
- Have successful personal or professional experience managing finances
Should You Pursue Disinheritance?
Prior to special needs trusts, disinheritance was the legal device used by most people to provide for a disabled child. If you choose to pass your assets on to the child’s siblings instead of the child him or herself, they can be accessed in the event of lawsuits, bankruptcy, or divorce.
If you choose to transfer assets to your child affected by cerebral palsy by any means other than a special needs trust, he or she may not be able to receive government benefits for as long as 5 years into the future.
Special needs trusts guarantee the funds placed in the trust are only used to benefit the person affected by cerebral palsy or other disability and completely avoid probate court, which costs significant amounts of time and money.
The One Downside to Special Needs Trusts is Repayment in One Situation
The one situation where your child with cerebral palsy may be required to pay Medicaid or other government benefit programs is when he or she places his or her own assets within the trust. If the trust is funded by his or her parents, other third parties, or a personal injury settlement, your child will have no payback obligations.
If you have more questions regarding special needs trust, contact your local attorney.