Special Needs Trusts--Understanding the Basics

    If you want to leave money to a family member or a loved one who has a disability, it is important to plan carefully.  Without such planning, you could jeopardize your loved one’s ability to receive the benefits and financial support to which he or she may be entitled from other sources.   By setting up a special needs trust, you can avoid some common problems that may arise when you try to provide for the financial security and continuing care of a loved one with special needs. 

Leaving Assets to a Child or Spouse with Special Needs: 

Aging parents of a special needs child often are not afforded the peace of mind other parents can enjoy when leaving assets to their children.  This class of parents cannot simply treat a special need child in the same manner as other heirs to their estate with the assurance that all will be well. Rather, in making provision for the continuing care of the special needs child, strategic direction and creative fiscal planning is necessary to ensure that the child’s inheritance will be managed effectively and will not jeopardize availability of other benefit sources.  

Similarly, a caregiver who spends all day and night with a spouse suffering from a physical or mental disability will have concerns far beyond the financial wellbeing of a surviving spouse as in any marriage.  A caregiver spouse must also agonize over how to develop an estate plan that will ensure adequacy of care and oversight of the fiscal affairs of the disabled spouse, should he or she survive the caregiver.

In each of these instances, special needs trust arrangements are an invaluable means of ensuring the level of continuing care that a special needs child or spouse will require.   

Divorce Proceedings with a Special Needs Child: 

It is important to note that special needs trusts are not only used for planning an inheritance or a lifetime gift, but can also be used where one of the children of a divorcing couple has a disability or other special needs.  If the judge orders life insurance to be paid as part of a settlement or distribution of marital assets, when the beneficiary is a special needs child, policy proceeds should usually be directed to a special needs trust with the child as beneficiary.  Without such protective measures, a life insurance payout directly to the special needs individual could have negative consequences with respect to his or her future eligibility for government assistance and services.  

Protecting Settlements: 

Special needs planning also is highly advisable when working with litigators to protect settlements.  If an individual receives a settlement for injury or disability resulting from an accident or medical malpractice incident, for example, a special needs trust can be created at the time of settlement.  As with other uses of the special needs trust device, securing settlement proceeds in this manner will ensure that a permanently disabled or severely injured beneficiary will not be barred from receiving government disability benefits or other forms of support services to which he or she would otherwise be entitled.  

    While a special needs trust is not a cure for all worries that necessarily accompany caregiver responsibilities for a loved one with physical or mental disabilities, it can give families some peace of mind.  If you think that you or someone you love could benefit from a special needs trust, contact the attorneys at Smith Strong today at (804) 325-1245 or (757) 941-4298.