Protect your disabled child with a special needs trust

Parents of children with special needs must take extra care with their estate planning to ensure their child receives appropriate care and support after their parents are gone.

Experts such as elder law attorneys and financial advisers typically recommend establishing a supplemental special needs trust that names the special needs child as beneficiary. This provides a financial shelter for assets the family can use to supplement government benefits—usually Supplemental Security Income (SSI), Medicaid, and state- or community-based services—that take income into account.

Key considerations when establishing a supplemental special needs trust include:

• What you want for your special needs child
• How to “fund" or capitalize the trust
• Who should manage the trust's assets

Learning a few basics will help you understand what's involved before meeting with professionals to create a supplemental special needs trust.

What do you want for your child?

Hal Wright, a retired financial planner who wrote The Complete Guide to Creating a Special Needs Plan and has an adult daughter with Down syndrome, encourages families to write a letter of intent as a companion to the trust.

His template for the document, which helps describe the quality of life you want for your child, includes:

• Your hopes and dreams for your child
• A detailed description of a week in the child's life
• The child's care needs
• Financial support information
• A contact list with the role each individual plays in the child's life, along with all contact information
• Emergency contact information if something happens to you

“Most trust officers welcome a letter of intent because it helps them make decisions," Wright says.

How will you fund the special needs trust?

Start by estimating the cost of lifetime support for the child before developing a funding plan.

“Funding the trust can be the hardest thing for parents," says elder law attorney and financial adviser Patrick Simasko. “If you don't fund the trust, it's like a car with no gas."

Common funding options include life insurance, financial asset transfers or a quitclaim deed on a home. Those funds become available when the trust owners—for example, the parents—die and can no longer provide for the child's care.

“I'm a big fan of incrementally funding a trust during the family's working years, too, because, when parents retire, their income will drop," Wright says. “Remember that you'll retire as a family of three, not two—yourselves and your special needs child."

Who will make decisions about the trust?

Parents are typically the trustees while they're alive. After both are gone, a successor clause identifies the person will who administer the trust. Because this entity will make decisions about how funds are used, it's important to be thoughtful and objective about the person you select.

While a sibling might be the obvious choice, Wright says that's not always the best solution—especially if you haven't talked about it first.

“It's not wise to ask someone to bear a responsibility they're not willing to commit to," he says.

When naming a corporate entity such as an attorney, bank, trust company or brokerage firm wealth management division, appoint a trust protector, too. This individual—often a family member or attorney—makes sure the trustee is fulfilling their obligation to manage the trust for the special needs child's benefit.

Don't wait to take action

“The major driver for most families is fear about what will happen to the child when they're gone, and it's a legitimate concern because, absent a medical condition, more than half of offspring with disabilities will outlive their parents," Wright says.

Talk about your wishes with family members, then take action with an elder law attorney and financial adviser.

“Use the legal documents available to protect your children and the benefits they're going to need," Simasko says.