Special Needs Trust

Imagine this situation: Your adult child has a long-term disability. Maybe it’s a severe mental illness; maybe it’s a serious physical disability. Maybe it’s both. You have significant assets – a house, some successful investments. You are concerned about your disabled child receiving an inheritance when you die.

Maybe this concerns you because your son receives SSI benefits and if he were to suddenly receive a windfall of cash his benefits would dry up. Or perhaps you are worried because your daughter is bipolar or schizophrenic and unable to manage money: If she received a huge sum of cash she would spend it; if she were to get the family home it’s possible she could destroy it.

In either scenario, you are right to be concerned. While receiving an inheritance tends to be a positive event for most people, for a person with a long-term disability it can become his or her demise. Public assistance programs such as Supplemental Security Income (SSI) and Medicaid are “needs-based” programs. If an SSI or Medicaid recipient were to receive an inheritance, the Social Security Administration will quickly see that that person no longer needs public assistance and will boot him out of the program.

Even if your child was not a recipient of public assistance, receiving an inheritance when she is incapable of handling it could mean that she is left destitute in a short amount of time.

So what do you do? How do you prevent an inheritance from becoming your disabled child’s downfall?

The answer is to create a special needs trust. Your will or revocable living trust can include a provision for a special needs trust. The trust is created upon your death, and any asset left to your disabled child will be safeguarded in the trust and managed by your appointed trustee. Because the child’s inheritance is in a trust and he doesn’t have control over it, it isn’t considered a “resource” and doesn’t count in determining his level of need. As soon as trust funds are distributed directly to the child, however, it would count as income and could reduce his benefits. Your trustee would want to be knowledgeable about the ways to use trust funds for the child’s benefit without creating income.   

By creating this type of trust, you ensure that your special needs child will never be destitute. You ensure that your child receives her inheritance but at the same time, keeps her public assistance benefits and also safeguard her assets for the long run.

If you have worked hard to provide for your disabled child’s needs during your lifetime, a special needs trust will ensure that this doesn’t end upon your death.

Robert (Bob) Good has practiced law in Jackson County for over twenty years, specializing in family law, estate planning and business law. Contact him at his Ashland office at (541) 482-3763.