Absolutely, a parent can—and often should—set up a special needs trust for their child with disabilities, ensuring continued care and financial security without jeopardizing crucial government benefits. These trusts, formally known as Supplemental Needs Trusts (SNTs), are legal arrangements designed to hold assets for the benefit of a person with disabilities while preserving their eligibility for needs-based public assistance programs like Supplemental Security Income (SSI) and Medicaid. Without proper planning, an inheritance or other assets could disqualify a disabled individual from receiving these vital services, leaving them in a financially precarious situation. Approximately 1 in 4 Americans live with a disability, and many families are realizing the necessity of these trusts to safeguard their loved one’s future.
What are the different types of special needs trusts?
There are primarily two main types of special needs trusts: first-party, also known as self-settled trusts, and third-party trusts. A first-party trust is funded with the disabled individual’s own assets – perhaps from a personal injury settlement or inheritance they’ve already received. These trusts have specific “payback” provisions, requiring any remaining funds upon the beneficiary’s death to reimburse the state for Medicaid benefits received. Third-party SNTs, on the other hand, are funded with assets belonging to someone other than the beneficiary, usually their parents, grandparents, or other family members. These trusts don’t have the same payback requirements, allowing any remaining assets to pass to designated beneficiaries. “The goal isn’t to simply accumulate wealth, but to supplement the existing resources and ensure a high quality of life for the individual,” says Ted Cook, a San Diego estate planning attorney specializing in special needs trusts.
How much does it cost to set up a special needs trust?
The cost of setting up a special needs trust can vary significantly depending on the complexity of the situation and the attorney’s fees. Generally, you can expect to pay between $3,000 and $7,000 for a basic third-party SNT. Ongoing administrative costs, such as trustee fees and accounting services, will also need to be considered. It’s important to remember that the cost of establishing and maintaining the trust is often far less than the potential loss of government benefits. A missed opportunity to plan could mean sacrificing tens of thousands of dollars in essential support. We had a client, Maria, who didn’t fully understand the implications of leaving her disabled son a small inheritance. She figured a few thousand dollars wouldn’t hurt. It turned out it was enough to disqualify him from receiving vital Medicaid benefits, and she was left scrambling to fix the situation.
What happens to the trust after my child passes away?
The disposition of assets remaining in a special needs trust after the beneficiary’s death depends on how the trust was structured. As mentioned earlier, first-party trusts require reimbursement to the state for Medicaid benefits received. Any remaining funds, after satisfying those obligations, would then be distributed according to the terms of the trust. Third-party trusts, however, allow the grantor (the person creating the trust) to designate beneficiaries to receive the remaining assets. This provides greater flexibility and control over how the assets are distributed. “It’s crucial to have a clear understanding of the trust’s provisions and to work with an experienced attorney to ensure that your wishes are carried out,” adds Ted Cook. “Proper planning can provide peace of mind knowing that your child’s needs will be met and your legacy will be preserved.”
Can I avoid these pitfalls by planning ahead?
Absolutely. I recall working with the Peterson family. Their son, Ethan, had cerebral palsy, and they were determined to provide for his long-term care without jeopardizing his benefits. They consulted with us early in the planning process and established a carefully crafted third-party special needs trust. They diligently funded the trust with life insurance proceeds and regular contributions over the years. When Ethan’s grandmother passed away and left him a substantial inheritance, the funds were seamlessly directed into the trust, protecting his eligibility for SSI and Medicaid. Years later, when Ethan sadly passed away, the remaining assets were distributed according to the trust terms, fulfilling his parents’ wishes and providing for other family members. “This is the power of proactive planning,” says Ted Cook. “It’s not just about protecting assets; it’s about safeguarding a loved one’s future and ensuring their quality of life.” The Peterson’s early intervention and meticulous planning allowed them to avoid the difficulties faced by Maria and provided their son with a secure and fulfilling life.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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