Create a Special Needs Trust to Protect the Financial Future of Your Child with Special Needs

Serving Burlingame, Foster City, and San Mateo with exceptional estate planning.

By Laura Croft, Esq.

Jun 25
Special Needs Estate Planning

This is a picture of my totally awesome son Mac. He is adorable and has special needs, so it is no mystery why special needs legal planning hits home for me as a parent and as a lawyer. It does not surprise me to hear parents who have a child with special needs tell me that they are not aware of what they need to do to ensure that the future well-being and care of their child is properly handled. But, my heart sinks when they tell me they didn’t know they needed to do anything at all because I want to make sure every family with a child or children with special needs is informed, educated and empowered to make the best choices for their family and children.

If that’s you, and you have a child with special needs at home, this article is for you. And if you have friends or family who have a child with special needs, please share this article with them.

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Every parent who has a child with special needs must understand what’s needed to provide for the emotional, physical, and financial needs of their child, if and when something happens to them.

Naming Guardians

Of course, the first and most critical step in ensuring the well-being and care of your children's future is to name both short and long-term legal guardians to take custody of and care of your children, in the event of your death or incapacity. And as you well know, this responsibility will not end at age 18, if your child will not be able to independently care for him or herself as they grow into adulthood.

While we understand this lifetime responsibility often feels overwhelming, we’ve been told repeatedly by parents that naming legal guardians in writing and knowing their child will be cared for in the way they want, by the people they want, creates immense relief.

We frequently build in plans where the named guardians are properly instructed—and even incentivized—to give your child the same care you provide. For example, we’ve created plans whereby the named guardian is compensated for taking the child to dinner and the movies weekly, or doing something similar that the child enjoyed doing with his or her parents.

But without written instructions built into the plan, critical social experiences and community activities like this can often go by the wayside when you’re no longer available. For guidance on selecting legal guardians and properly instructing them to provide your child with the same level of care and attention you do, consult with us as your Personal Family Lawyer®.

Beyond naming a guardian, you’ll also need to provide financial resources to allow your child to live the highest quality of life, in the manner you desire. This is where things can get tricky for children with special needs. In fact, it may seem like a “Catch-22” situation. You want to leave your child enough money to afford the support they need to live a comfortable life. Yet, if you leave money directly to a person with special needs, you risk disqualifying him or her for government benefits.

Special Needs Trusts

Fortunately, the government allows assets to be held in what’s known as a “special needs trust” to provide supplemental financial resources for a physically, mentally, or developmentally disabled person without affecting his or her eligibility for public healthcare, income assistance and other critical government benefits.

However, the rules for such trusts are complicated and can vary greatly between different states, so you should work with us as your Personal Family Lawyer® in order to create a comprehensive special needs trust that’s properly structured and appropriate for your child’s specific situation.

Setting up the trust

Funds from a special needs trust cannot be distributed directly to a beneficiary and must be disbursed to a third-party who’s responsible for administering the trust. Given this, when you initially set up the trust, if it is set up as a vehicle during your lifetime, you’ll likely be both the “grantor” (trust creator) and “trustee” (the person responsible for managing the trust), and your child with special needs is the trust’s “beneficiary.”

You’ll then name the person you want responsible for administering the trust’s funds once you’re no longer able to as “successor trustee.” To avoid conflicts of interest, overburdening the named guardian with too much responsibility, and provide checks and balances, it can sometimes be best to name someone other than your child’s guardian as trustee.

As the parent, if the special needs trust is set up during your child's lifetime, you serve as the trustee until you die or become incapacitated, at which time the successor trustee takes over. Each person who serves as trustee is legally required to follow the trust’s terms and use its funds and property for the benefit of the individual with special needs. And in all cases, you should name a series of successor trustees, which can even be a bank, trust company, or other professional fiduciary, as backups to your primary named trustee.

Placing Money and Property into a Special Needs Trust

There are two ways to set up a special needs trust. In one situation, we build it into your revocable living trust, and it will arise, or spring up, upon your death. From there, assets that are held in your revocable living trust will be used to fund your child’s special needs trust.

In other cases, we can set up a special needs trust that acts as a vehicle for receiving and holding assets for your child now. This makes sense if you have parents or other relatives who want to give your child with special needs gifts sooner rather than later. It is also the best option if the parents of a child with special needs are no longer married and both have assets that will someday pass to the child.

We’ll be dedicating a future article on the available estate planning options you can use to pass money to a special needs trust. Until then, consult with us as your Personal Family Lawyer® if you need guidance on the planning vehicles that are best suited for this purpose.

The Trustee's Responsibilities

Once the trust is funded, it’s the trustee’s job to use its funds to support the beneficiary without jeopardizing eligibility for important government benefits. To handle this properly, the trustee must have a thorough understanding of how eligibility for such benefits works and stay current with the law. The trustee is also required to pay the beneficiary’s taxes, keep detailed records, invest trust property, and stay current with the beneficiary’s needs.

It is very common for parents to name siblings and other family members as trustees. However, given this huge responsibility, I often recommend that you name a legal or financial professional or a private professional fiduciary, check out PFAC, who’s familiar with the complexities of the law as trustee or co-trustee, so they can properly handle the duties and not jeopardize eligibility.

If you need help creating a special needs trust for your child, contact us as your Personal Family Lawyer ®. We can develop a sustainable living plan for your child with special needs that will provide her or him with the financial means they need to live a full life, while preserving their access to government benefits. Contact us today to get started.

This article is a service of Laura Croft, Esq., Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge. 

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About the Author

I have five children, two of my children have special needs and one is my step-daughter. On a deep level, I understand how every family has special gifts, dreams, fears and goals and I am deeply committed to be your trusted advisor who helps you make the very best personal, financial, and legal decisions for your family throughout your lifetime.