In its simplest form, estate planning requires careful consideration. When you are the parent of a child with special needs, it’s even more critical that you make the right choices when planning for your family’s future. One of those choices is whether to set up a special needs trust. Before you make any decisions, speak with a qualified Houston special needs trust lawyer.
The decision is an important one if you want to continue supporting your child with special needs after they become a legal adult. Here are three reasons you should consider creating such a trust.
1. You Want Your Child to Continue Receiving Benefits
Many adults with special needs rely upon public benefits such as Supplemental Security Income (SSI) and Medicaid. If you want to continue to support your child with special needs after they turn 18 without jeopardizing their benefits, a special needs trust can help ensure that they continue receiving them. If you were to simply give them money to live on, they would have to report that as income, which could put them over the income limits for their benefits.
When you set up a trust instead, you can protect those benefits. Because the trust holds the assets that you fund it with—whether it is property or money—your child does not actually own those assets. As the beneficiary of the trust, the income that they receive will not affect their benefits. However, the income that your child receives from the trust must be supplemental. As an estate planning tool, though, a special needs trust is a great way to provide your adult child with a higher quality of life.
2. You Want to Ensure the Funds Are Used Only as Intended
Leaving an inheritance to a child without the protection of a trust allows for abuse to occur. You might think that you leave your estate to a trusted relative with the stipulation that it be used for the benefit of your child. But too many times, this type of arrangement leads to bad decision-making and betrayal. Without the protection of a trust, the estate you leave behind is subject to misuse and can be seized for outstanding debts.
If you want to ensure that the funds you leave behind are used how you intend them to be used, creating and funding a trust might be right for your situation.
3. A Special Needs Trust Allows Others to Contribute
By establishing a trust now, you can multiply the amount of support that your child with special needs can receive in the future. How? By encouraging others, such as grandparents, to contribute to the trust. Anyone who wants to help can give up to $15,000 per year without incurring the gift tax.
What is a Special Needs Trust?
A special needs trust, as defined by Texas law is one that allows someone with disabilities to set aside money for their care. The special needs trust allows an individual with a disability to still be entitled to all government benefits.
A designation of guardianship should also be considered when planning for special needs trusts. A temporary guardian can be designated depending on the location of the successor guardian. Temporary guardians can take care of the child while the permanent guardian is in place. Temporary health care agents may be needed in the event that the parent needs someone else to transport the child to the hospital. HIPAA authorizations are required for disabled children. They allow for access to medical records if needed.
Special needs trusts are specifically created to provide money for beneficiaries. It doesn’t really matter what the amount is. They are eligible for benefits regardless of the amount. We tell our clients that even if you have one million dollars invested in a trust for special needs, your child can still receive government benefits – provided that the planning is done properly.
Two methods can be used to fund a special needs trust. When we establish a trust for special needs, the parents usually open a savings account and deposit small amounts each year. A special needs trust can be funded by beneficiary designation. A beneficiary designation is a way for parents to leave a specific amount to their child, such as a gift to the special needs trust trustee.
Transferring Property to the Special Needs Trust
Transferring assets to a special needs trust can be either easy or difficult, depending on the amount of planning made before the trust is established.
For a testamentary special needs trust, transferring assets can be fairly easy. A testamentary trust can be described as a section of your will that includes the creation of a trust upon your death. The trust is usually given property or assets in the gift section of your will. The trust terms are then set out in the will. In other words, the trust is a “springing trust” because it becomes active upon your death. However, before that happens, there is no trust, so there is no need to manage it.
It is slightly more complicated to fund and transfer assets into an inter-vivos trust, compared to a testamentary special needs trust. An inter-vivos trust is established during your lifetime. Instead of being part of your will, the trust can be its own legal document. The trust must be funded once it is created but assets can be added before the beneficiary turns 65. As such, you have the option to wait before transferring assets to the trust.
A first-party special needs trust is the most difficult type of trust to transfer assets into. If the beneficiary is already in possession of the assets, family members can create the trust and transfer the beneficiary’s assets into it on their behalf. Even though the beneficiary may be legally competent to create his or her trust, they cannot do so. If the bank, finance firm, or any other entity that has the assets refuses to allow the transfer, a lawsuit must then be filed with a court. The court will order the assets to be placed in the trust. In this situation, however, the beneficiary will need to try to re-establish eligibility for benefits. This could lead to the beneficiary being placed at the back of the line for benefits or can even lead to permanent loss of benefits.
Wondering Whether a Special Needs Trust Is Right for You?
The decisions you make regarding your estate plan can have consequences in the future. Want to make sure that you are making the best, most educated choice that you can so that your child with special needs can enjoy the quality of life that you want for them? I’d love to talk to you. Contact The Law Office of Whitney L. Thompson today so we can discuss how to approach your estate plan.
