The Special Needs Trust: A Way to Care for a Disabled Family Member

Suppose you have a child with a disability. Maybe the child was born with a mental disability, or maybe even a physical disability. The child may have been normal at birth and developed the mental or physical disability later in life. You love this child and want to provide the best possible care for him or her.

Because of the disability, the child can qualify for government benefits. Maybe the child receives Medicaid benefits. Medicaid is a joint federal and state program that provides important medical benefits. The child could be receiving Supplemental Security Income, known as “SSI,” which is a program of the Social Security Administration. SSI provides cash payments to persons in need who are 65 years of age or older, are blind or who have a disability.

In order to qualify for Medicaid or SSI, the person with the disability must have $2,000 or less in assets. There are also certain income limits. (The usual poverty level income limits do not apply to someone in a nursing home who needs Medicaid help. With proper planning, even persons with large retirement income can qualify for Medicaid for nursing home costs.) You love your child and want to provide for his or her care, but doing so may cause the child to lose valuable Medicaid or SSI benefits. This is where a “Special Needs Trust” can be very useful.

A special Needs Trust is specially designed to provide for a person with a physical or mental disability. The term “Special Needs Trust” is used not only in the United States but in the United Kingdom and Ireland as well. In the U.S., a Special Needs Trust is sometimes referred to as a Supplemental Needs Trust. Both terms generally mean the same thing.

A Special Needs Trust is used to provide financial help for a person with a disability who receives government benefits or who may in the future need government benefits. The trust can be set up by the disabled person’s father or mother, grandparent, aunt or uncle, or anyone else concerned about the person’s welfare. The person with the disability could be a minor child, an adult child or even an elderly person in a nursing home. In some instances, the disabled person can even set up the Special Needs Trust for his or her own benefit using his or her own funds or money from a personal injury lawsuit.

The Special Needs Trust is written in such a way so that the person with the disability will not lose Medicaid or SSI benefits. The trust assets are not considered the assets of the person with the disability, so he or she still has less than $2,000. And yet, the Special Needs Trust can provide money for “special needs” or “supplemental needs” besides what Medicaid or SSI will provide, without disqualifying the person from Medicaid or SSI benefits.

“Special needs” might include things like dental care, un-reimbursable medical expenses, supplemental nursing care, recreation, cultural experiences, outings, travel, telephone service, television, a computer, reading and education. In short, the special needs trust provides money for objects or activities that enrich the disabled person’s life and makes it more fulfilling without losing the government benefits.

Often a parent has two or more children, one of whom has a disability. When the parent makes a will or a trust, he or she may have been advised to leave everything to the healthy children, thus leaving the child with a disability without an inheritance. This is not necessary. With a Special Needs Trust, the parent can leave an inheritance for both the healthy children and for the child with a disability. The child with a disability can continue to receive government benefits while also enjoying a fuller life with financial help from the Special Needs Trust. When the child with the disability dies, the money remaining in the Special Needs Trust can then go to the healthy children, or if they are gone, to grandchildren.

With a Special Needs Trust, the parent does not have to feel guilty about disinheriting a child with a disability. A Special Needs Trust could be setup as an irrevocable trust during your lifetime for the benefit of your disabled child; or as a part of your revocable trust that becomes irrevocable when you pass away.

A well-drafted estate plan can include a revocable trust that splits into separate trust shares for the benefit of your children or other beneficiaries and continues on after you pass away, letting the children access the trust assets from their share as needed. Even if none of the children have a disability at the time you pass away, the separate trust shares can each have standby, backup Special Needs Trust language in them so that if one of the children, grandchildren, or other beneficiaries ever does become disabled in the future, the trust would switch over to a Special Needs Trust at that time for that beneficiary’s share, and protect their inheritance while allowing that beneficiary to still qualify for government benefits.