How To Cre­ate A Fi­nan­cial Plan For A Child With Spe­cial Needs


Most par­ents rec­og­nize the need for an es­tate plan to look af­ter the wel­fare of their chil­dren. But when the child has phys­i­cal, emo­tional or men­tal chal­lenges, care­ful es­tate plan­ning is even more cru­cial. One ma­jor rea­son to cre­ate a proper es­tate plan is to pre­serve a spe­cial needs child’s el­i­gi­bil­ity for gov­ern­ment ben­e­fits and other pro­grams.

There are traps that could jeop­ar­dize el­i­gi­bil­ity for those ben­e­fits. One of those is ben­e­fi­ciary des­ig­na­tions in re­tire­ment plans.

Ben­e­fi­ciary des­ig­na­tions in re­tire­ment sav­ings plans can pro­vide great flex­i­bil­ity for pass­ing on an in­her­i­tance: You can des­ig­nate pri­mary, sec­ondary, and con­tin­gent ben­e­fi­cia­ries, or even des­ig­nate groups of peo­ple like “sur­viv­ing chil­dren” or “sur­viv­ing grand­chil­dren.”

On the other hand, the con­ve­nience and flex­i­bil­ity pro­vided by leav­ing funds in re­tire­ment plans – or other tan­gi­ble as­sets—to chil­dren with spe­cial needs can have a dra­matic un­in­tended fi­nan­cial im­pact on those re­ceiv­ing needs-based

gov­ern­ment ben­e­fits.

For ex­am­ple, say your son re­quires spe­cial care. Due to his con­di­tion, he qual­i­fies for Med­i­caid and re­ceives aid to help with daily liv­ing and med­i­cal needs. You want to leave him money to help make his life bet­ter… but if your re­tire­ment funds pass di­rectly to your son, re­ceiv­ing those as­sets may dis­qual­ify him for Med­i­caid ben­e­fits. Since in gen­eral terms only a home, a car used as trans­porta­tion for med­i­cal care, and a small amount of cash are ex­empt from Med­i­caid cal­cu­la­tions, in­her­it­ing a large sum of money could make a dra­matic im­pact on his dis­abil­ity ben­e­fits.

The best way to avoid this sit­u­a­tion is to cre­ate a Spe­cial Needs Trust and place or leave the as­sets in­tended for that child in the Trust. A Spe­cial Needs Trust is de­signed to sup­ple­ment ben­e­fits re­ceived from gov­ern­ment pro­grams. In­stead of pay­ing for med­i­cal care, for ex­am­ple, the trus­tee can then use those funds for the best use and com­fort of the ben­e­fi­ciary and pays for things Med­i­caid will not pay for.

Set­ting up a Spe­cial Needs Trust is rel­a­tively straight­for­ward. In most states a dis­cre­tionary Trust qual­i­fies as long as the ben­e­fi­ciary is not also the trus­tee and the Trust was set up by some­one other than the ben­e­fi­ciary. Re­tire­ment plans and gifts can then be left di­rectly to the Trust, which could be used for cloth­ing, en­ter­tain­ment, va­ca­tions, and other dis­cre­tionary spend­ing for the ben­e­fit of the child.

Prop­erly de­signed, the Trust can re­ceive re­tire­ment funds or other as­sets with­out cre­at­ing neg­a­tive reper­cus­sions. Your goal is to help your child with spe­cial needs with­out com­pro­mis­ing his or her ben­e­fits, so make sure your best in­ten­tions are ac­tu­ally re­al­ized.

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