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How your child with a disability can benefit from a special needs trust

If you have a child or grandchild with special needs, you may wish to create a special needs trust to ensure that the child receives the necessary care and financial assistance through adulthood. The trust sets aside funds for the benefit of the child, and is managed by the trustees, who are usually family members who will be responsible for the child following the death of the guardian.

A special needs trust can be useful if the child receives Medicaid, Supplemental Security Income (SSI) or other government benefits that are relevant to the disability. Because such benefits frequently depend on an individual’s assets and level of income, a person can easily be disqualified from receipt of benefits if the child is the recipient of a large inheritance. The use of a special needs trust in lieu of a direct transfer of assets to the child can help prevent the child from being disqualified from receiving benefits.

Since the child with special needs will not have any control over the trust assets, they will not be taken into account by the administrators of Medicaid and SSI with regard to the beneficiary’s eligibility. The trust expires when it is no longer necessary; this usually occurs at the beneficiary’s death or when the funds have been expended.

The trustee can use the funds in the trust to purchase various goods and services for your loved one. The assets can pay for personal care workers, out-of-pocket medical and dental expenses, education, physical rehabilitation, recreation, a car, vacations and home furnishings.

When trying to arrive at a fair distribution of assets, consider using life insurance when one heir will likely need more financial help than your other heirs. For instance, parents can bequeath an equal part of their estate to each heir. However, they can then allocate a life-insurance award to the special needs trust of the child who is disabled. This can allay some of the concerns regarding fairness by treating the financial future of the disabled child as an issue to be dealt with separately.

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