Parents of a special needs child must make additional considerations when creating their estate plans. Whether their child is a minor or has already entered adulthood, it's important for parents to know their child will be provided for after they die.
What a special needs child requires throughout their life will vary based on the child's age, competency level, and medical requirements, as well as the wishes of their family. With that in mind, the objective of the estate plan will be threefold: to ensure the special needs child experiences the best quality of life they can, that the assets upon which they will rely will last as long as possible during their lifetime, and that their eligibility for public services will be maximized.
One of the best ways to protect your special needs child's interests after you die is to create a special needs trust. This is what you need to know.
What is a special needs trust and why might you need one?
A special needs trust serves two primary purposes. It allows for the management of the trust's assets while maximizing the child's likelihood of qualifying for public assistance, including Social Security and Medicaid.
Failure to create a special needs trust could result in a special needs child not qualifying for public benefits because they either have too many assets in their name to qualify or the income generated from those assets disqualifies them. For example, if a special needs child were to inherit assets from a parent while already receiving benefits during that parent's lifetime, they could run the risk of having their benefits discontinued depending on the amount of the bequest they receive.
A special needs trust requires a trustee to manage it. Having a special needs trust with a reliable trustee in place can serve as a safeguard against abuses or mismanagement of money bequeathed to a special needs child who might not be able to manage those resources independently.
How is a special needs trust created?
There are different ways to create a special needs trust. Each method has advantages and disadvantages and specific reasons for choosing one option over the other.
Creating a special needs trust from a testamentary trust
You can include a provision in your will or revocable living trust for the creation of a testamentary trust that would be designated as a special needs trust upon your death. Testamentary trusts are created after the testator dies and don't exist before that time.
It's important to note that a testamentary trust provided for in a will is subject to probate because the entire will must be probated. However, because a testamentary trust isn't created during the testator's lifetime, it will lie dormant until the testator's death and then be limited to the provisions set forth by the testator in their will.
Creating a special needs trust from a living trust (inter vivos trust)
Another alternative for creating a special needs trust is for a testator to create it during their lifetime. This type of special needs trust would be a living trust, also known as an inter vivos trust.
The benefits of creating this type of special needs trust would be to avoid probate, for the creator to have the ability to continue funding it during their lifetime, and, finally, to allow the trustee time for training on how to manage the trust as well as gain familiarity with using the trust to provide for the child's needs. This type of trust is also appealing to family members who might want to contribute money to the child's care before they're deceased.
Are there different types of special needs trusts?
There are two types of special needs trusts. The first is a self-settled special needs trust. This kind of trust is created by the special needs individual who will benefit from it, so long as they have legal capacity when they create it. It can be funded, for example, using the proceeds from a personal injury settlement or insurance claim.
The second type is a third-party special needs trust. This trust is created for the benefit of the special needs child using resources from anyone other than the beneficiary. It can be funded through a living trust or through an estate plan via a testamentary or living trust.
Should a special needs living trust be revocable or irrevocable?
A special needs trust that's revocable remains in control of the creator during their lifetime. The creator of an irrevocable trust, on the other hand, relinquishes all control of the trust, even when they're alive. They may not, for example, add or withdraw from the trust or take control of it.
One of the main reasons for choosing a revocable special needs trust versus an irrevocable special needs trust has to do with the tax considerations involved in each. In general, irrevocable trusts are more favorable from a tax perspective. If a revocable living trust is utilized, it's critical that the power to revoke not be extended to the special needs beneficiary.
In either type of trust, selecting the trustee requires important consideration. The trustee should never be the beneficiary or the beneficiary's spouse because this type of control over the trust assets could cause disqualification from benefits. Selecting a trustee who understands the needs of the beneficiary is also an important consideration.
Before choosing which trust is best for your special needs child, it's best to consult with a tax professional to guide you, preferably one who's comfortable working alongside your estate planning attorney. Our estate planning department has local tax professionals we confer with daily to provide the most comprehensive approach to your estate plan.
How can you find a Seattle lawyer to help make a special needs trust a part of your estate plan?
At Elise Buie Family Law Group, we have a team of Seattle seasoned lawyers devoted solely to assisting our clients with all of their estate planning needs. Our compassionate estate planning attorneys have in-depth experience creating estate plans that can keep our clients' special needs loved ones comfortable and secure for years to come. Call our office today.
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