How can you protect the inheritance for your special needs child? One way is through a supplemental needs trust. A supplemental needs trust is a special type of trust that both provides management of money for the disabled beneficiary, and maintains the beneficiary’s eligibility for government services.
Supplemental needs trusts, also known as "special needs" trusts, are an important component of financial planning for an intellectually handicapped child. These trusts allow disabled beneficiaries to receive their inheritance – as well as gifts, lawsuit settlements, or other funds -- and not lose their eligibility for certain government programs. Because the beneficiary has no control over the funds in the supplemental needs trust, he is not considered to own them.
Accordingly, the trust will not affect eligibility for public benefits, such as MassHealth, Supplemental Security Income, and subsidized housing. (Distributions from the trust, however, can sometimes affect continued eligibility, and the trustee needs to be advised on how best to use trust funds for the beneficiary.)
Having a trustee manage the money is also an important benefit. Often, an inheritance will amount to far more money than he or she has ever had before. It may seem like an amount that cannot be depleted by spending. The reality, however, is that virtually any inheritance can quickly disappear if the beneficiary significantly changes previous spending patterns. Whether the trustee is a reliable family member or professional trustee, the trust can provide for management of the funds left to a disabled beneficiary as well as creditor protection.
If you have a child with special needs who is unlikely to be able to live and work independently, we recommend that you structure your estate plan so that any inheritance that child receives goes to a supplemental trust rather than to the child directly.
If you are interested in creating a supplemental needs trust for your loved one, contact Karen Mariscal of Margolis & Bloom, LLP, at KBM@Margolis.com.