A Special Needs Trust (also called a Supplemental Needs Trust) is a legal document that holds assets for a person with disabilities, while also providing legal authority for a trustee to manage money and make financial decisions on behalf of the individual with special needs. Read on to discover four common mistakes in creating a Special Needs Trust.
The Special Needs Trust also helps to ensure there are enough financial resources available to meet the individual’s long-term care needs, without jeopardizing eligibility for state or governmental aid. This aspect is key, as benefits such as Social Security or Medi-Cal (which is California’s medicaid program), while important and helpful, are limited and cannot possibly cover all expenses a person with special needs may need to live out his or her life in a secure and comfortable way.
Unfortunately, many parents think that the answer to this problem is to leave their child with disabilities a large inheritance when they die…but this is a mistake. While an inheritance may give the child a “cushion” for the future, it could cause him or her to become ineligible for benefits that the child relies on for healthcare and other day-to-day needs.
Again, the good news is that a Special Needs Trust can help preserve eligibility for benefits while also making sure there is enough money available for the child’s future care. But, the Special Needs Trust must be set up correctly to ensure the trust works as planned.
To that end, it’s important for parents of special needs children and adults to avoid the following mistakes when setting up this legal document:
- Procrastination: When you have a child with special needs, it’s a huge mistake to put off planning. You just never know when you might become incapacitated or die. But, it is even more critical for parents of special needs children to plan early. That is because a child with special needs may not be able to work and provide for their own financial well-being when they become adults. Having a Special Needs Trust set up while the child is still young will allow others to make contributions and gifts through the years in a way that doesn’t penalize the child financially.
- Trying to cut corners with “DIY” or online options. Special Needs Trusts should be created by a lawyer who focuses in this area of the law because special needs trusts are subject to both federal and state laws, and the laws of each state can vary. Likewise, the ins and outs of benefit programs are complex, and you’ll want to work with an attorney who is well-versed in the options available to your family.
- Failing to educate trustees on expectations and duties: Being selected to serve as a trustee of a child’s Special Needs Trust is a big responsibility. Before choosing a trustee, we recommend talking to that person about what may be expected of him or her when the parent is no longer able to manage the child’s trust funds. It may even be helpful to bring your desired trustee in to meet with your special needs planning attorney who can run that person through some of the specific responsibilities he or she will take on, such as paying the child’s bills.
- “Drafting it and forgetting it.” A Special Needs Trust prepared for a minor child can a living document that is flexibly designed to meet the changing care needs of a person with disabilities. To that end, a Special Needs Trust fpr a minor child should be updated every few years to ensure that the document is up-to-date and reflects a current snapshot of the individual’s life.
- Assuming Special Needs Trusts are only for a minor children – a Special Needs Trust is not just for young children. It can be created when a child is already an adult. Sometimes a disability may not occur or become identifiable until later in life. Other times the oversight in planning and threat to government aid doesn’t become apparent until a financial event such as an inheritance or lawsuit award occurs. The good news is that a Special Needs Trust can still be created. That said, it is generally advisable not to wait until such a life event to create one, but to do so as early as is possible.
- Thinking there is only one type of solution – There is more than one type of Special Needs Trusts. There are three to be exact: first party trusts, third party trusts, and pooled trusts. The reasons and benefits for each are different. There are also other financial strategies such as an ABLE account which in the right circumstances may be pursued in tandem to creating a Special Needs Trust. The key takeaway is to speak with professionals who have experience working with families and children (minors or adults) with special needs to explore all options that fit your needs. Knowing all the cards in the deck can help you develop a much better hand for your loved one.
Creating a Special Needs Trust is complex. The document is designed to support and protect a person with special needs through all of the transitions that he or she may face. Working with an experienced trust attorney can help avoid making one of the common mistakes mentioned above, while also providing families with a roadmap for a secure future.
If you have questions about Special Needs Planning in California or you need assistance getting started, please feel free to contact our Irvine law firm at (949) 333-3702 to set up an appointment.
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Kevin Snyder is a husband, father, and an Orange County estate planning attorney and elder law attorney at Snyder Law, PC in Irvine, California. He’s all about family and passionate about estate planning, elder law, and veterans. He founded Snyder Law to help families from Orange County, Los Angeles County, and Southern California plan to protect what matters most: their loved ones, their dignity, and their legacy.