By Boyce F. Lowery, CLU, ChFC
Being a parent is one of the greatest joys in life—but it’s also one of the most challenging aspects of life as well. If you have a child with special needs, this rollercoaster of emotions is even more exaggerated as you maybe have to deal with high medical bills and other financial costs.
You may constantly worry about what would happen to your child if you died or became incapacitated. Would they be able to have the same quality of life they do now?
These questions may prompt you to start setting aside an inheritance for your child to help cover some of the costs associated with their disability. But be careful with this.
The income thresholds for government assistance programs like Medicaid and Supplemental Security Insurance are pretty low. If your child with special needs receives a traditional inheritance, it could disqualify them from receiving government aid and increase their out-of-pocket expenses.
One way to preserve their inheritance without it jeopardizing their ability for government aid is to create a special needs trust (SNT).
What Is a Special Needs Trust?
A properly drafted special needs trust allows you to set money aside for your child without it interfering with their government aid. Money saved in or sent to this trust doesn’t count as qualifying assets when determining public assistance eligibility, making it a great way to leave your child an inheritance without it jeopardizing their security after you’re gone.
Two Types of Special Needs Trusts
There are two main types of special needs trusts: third-party trusts and first-party trusts.
- Third-party trusts are the most common and are often set up by loved ones who want to care for a child or family member with special needs. Depending on how it’s set up, grandparents, friends, and other loved ones may be able to contribute directly to the trust too.
- First-party trusts are typically set up if the person with special needs inherits assets outright or wins a lawsuit. They’re not as common as third-party trusts and are typically used when someone develops a disability later in life and needs to disperse their assets to qualify for public assistance. (1)
Benefits of a Special Needs Trust
A special needs trust is just as beneficial for the recipient (i.e., the child) as it is for the party who sets it up (i.e., the parents).
On one hand, the child has a safe way to receive financial support without it jeopardizing their ability to receive aid. On the other, parents get the opportunity to explicitly spell out how the money gets used.
The parents also gain peace of mind knowing the inheritance goes directly to their child. They don’t have to leave it to someone else and hope that they’ll “do the right thing” and use it for their child’s long-term needs
Special needs trusts are also irrevocable in most cases, meaning creditors can’t seize them and they can’t be won over in a lawsuit. The money is there for your child and their needs only.
What to Remember When Considering a Special Needs Trusts
Special needs trusts are one of the most efficient ways to save for your child’s future care and expenses. Still, there are a couple of caveats to which you need to pay attention:
- The beneficiary of the special needs trust must be younger than 65 at the time it’s set up. (2)
- The language you use when creating the trust can determine its validity, so be certain you meet with a qualified attorney who can help be sure your directives are explicit and clear.
How We Can Help
Parenting a child with special needs can be overwhelming and challenging. Thinking through how you’ll continue to provide for them when you’re gone adds to this stress. No matter your child’s age, you need a support system in place that can help you plan for their future.
Often, parents want to fund a Special Needs Trust through the use of a life insurance policy on their own lives which would then provide the funding for the trust at just the right time. The benefits for your child can be guaranteed and the cost is modest when compared with alternatives. Further, we can direct you to an attorney with expertise in advising and drafting related to special needs trusts. If you’d like to learn more, call us at 888-827-0146. We look forward to helping you put a plan in place that addresses all your needs and concerns for your special needs child.
Boyce Lowery is a 40-year veteran and established expert in the insurance industry. As the managing partner of Suncrest Advisors, he, his partner, and their associates all aim to provide financial security and peace of mind to business owners, executives and professionals, and high net-worth individuals across the United States. Along with more than four decades of experience, Boyce is a Chartered Life Underwriter® (the premier designation for insurance professionals signifying specialized knowledge in life insurance and estate planning) and a Chartered Financial Consultant® (known as the advanced financial planning designation). To learn more, visit https://suncrestadvisors.com/ or connect with Boyce on LinkedIn.