Special Needs Trust – How It Can Help
By Kathleen Bornhorst, JD
Pepe & Hazard, Hartford, CT
Parents with disabled children are often torn with indecision about what they incorrectly believe to be their limited choices for the child’s care after the parents’ deaths. Concerns range from the ability of the child to manage significant assets to fear of creating ineligibility for governmental benefits.
Some parents provide for the disabled child by leaving funds to a sibling on the theory that the sibling can manage the money, will “do the right thing” and the disabled child’s governmental benefit will not be impacted. This type of planning does not consider the possibility of the sibling’s divorce, death, creditors or greed, which can result in diversion of the “extra” funds to the caretaker’s ex-husband, beneficiaries, creditors or personal benefit.
Some parents leave assets directly to the disabled child, which can result in a reduction or elimination of the child’s government benefits or inappropriate expenditures on the part of the child.
There is a better way. A parent with a disabled child should provide for the child through a special needs trust. A trustee will manage the assets, invest the funds and distribute funds as necessary to or for the benefit of the disabled child. However, the trustee will be specifically instructed not to distribute funds to the child if to do so would impair the child’s eligibility for governmental benefits. The trustee will be encouraged to spend trust assets to supplement benefits and the supplemental items that can be provided are varied and include:
Following the disabled child’s death, any remaining assets can pass to his children, his siblings, or a charity that the parents may choose.
A sibling may serve as sole trustee (and the funds are removed from the sibling for tax purposes and are protected in the event of the sibling’s death, divorce or lawsuit). Two siblings may serve as co-trustee, or a corporate trustee may serve alone or as co-trustee with a family member.
Even though a corporate trustee, such as a bank, attorney, or accountant, will charge a management fee, parents are assured that a professional knowledgeable about taxes and investments is working for the disabled child’s benefit. Some corporate trustees specialize in working with people with disabilities and are up-to-date on the appropriate federal and state regulation, options and case management.
There is no need for parents of disabled children to avoid estate planning, or to fear for the care of their child after they are gone. A properly drafted special needs trust, coupled with a knowledgeable trustee, is the answer.
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