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Don’t leave an inheritance to your special needs child

Parents of children with special needs usually understand how much their children depend on them. Whether your child was born with a disabling condition or acquired it through illness or an accident, you likely spend much of your time and energy protecting and providing for him or her. You may be grateful for the government benefits that subsidize what you provide, but most of the weight is on your shoulders.

You may wonder how your child would carry on if something should happen to you. Foremost in your mind may be the importance of leaving enough money and other assets so your child will continue to receive food, clothing, shelter, medical treatment, therapy and other essentials when you are no longer around to provide them. However, an outright inheritance may be a devastating mistake for someone with special needs.

Why a trust?

If your child relies on government benefits, such as Medicaid or Supplemental Security Income, you may already know that many of these programs qualify recipients based on their income and assets. SSI, for example, limits eligibility to those who have assets worth $2,000 or less. If you were to leave an outright inheritance to your child, this may automatically disqualify your child from benefits and programs he or she may need.

Instead, you may wish to investigate the benefits of a special needs trust. With a trust, the assets do not go to your child but become the property of the trust. You designate a trustee to manage the assets you fund to the trust and distribute them as your child needs them in a way that will not disrupt any federal benefits.

What kind of trust do I need?

Special needs trusts come in different varieties. A family trust, for example, allows third-party contributors to fund assets during their lifetime and even to designate the trust as a beneficiary of a life insurance policy. First-party trusts receive assets directly from the person with special needs, such as an inheritance or personal injury settlement. A pooled trust maintains many of the benefits of a third-party trust, but a charitable organization manages it and then receives the remaining funds after the person with special needs dies.

These are only a few options, and you may already feel overwhelmed with the complexity of each. Speaking with an estate planning attorney may help you fully understand which special needs trust is most appropriate for your circumstances and how to avoid errors that can be costly to your loved one.