Special Needs Trusts: What They Are and Who Can Benefit from Them

Estate planning is an essential part of any complete financial plan, but having one becomes even more critical when that plan must provide for the financial security and care of a disabled child who otherwise cannot provide it for him or herself.

Special needs disabilities can range from children with severe autism, cerebral palsy, down syndrome, dyslexia, blindness, deafness, or cystic fibrosis. Many parents of disabled children spend their lives being their child’s primary caretaker. The thought of not being around to ensure their child’s well-being is terrifying!

The key is to determine the best way to provide financial support for food, shelter, clothing, medical expenses, and any necessary care without jeopardizing your child’s eligibility for government benefits.

Fortunately, there is a financial vehicle available that can provide security for your child without disqualifying them for Supplemental Security Income (SSI) or Medicaid—a Special Needs Trust (SNT).

What is a Special Needs Trust?

All trusts are legal documents created to outline a fiduciary agreement between three parties:

  • the donor: the person(s) funding the trust
  • the beneficiary: the person(s) set up to receive benefits from the trust
  • the trustee: the person(s) designated by the donor to manage the assets in the trust

The third-party custodian (e.g. Charles Schwab) holds and manages the assets in the trust on behalf of the beneficiary as is outlined by the donor in the trust documents.

A Special Needs Trust, also referred to as a Supplemental Needs Trust, is a trust specifically created to manage the assets of a person with special needs or a disability.

These trusts can be used to hold money that the donor has saved, money gifted to the beneficiary, money received from an insurance settlement, or even rollover benefits from a deceased parent’s retirement accounts if the trust is named as the beneficiary.

What are the Benefits of a SNT?

The two primary benefits of a SNT are that they (1) provide assets for the disabled child without disqualifying them for government SSI benefits or Medicaid and (2) appoint someone to safeguard and manage the child’s finances.

Funds held or deposited into a Special Needs Trust do not count against eligibility, making them a valuable resource for high net worth parents whom wish to bequeath a legacy onto their disabled child.

Another benefit, the Special Needs Trust is not subject to probate court, so the child will gain access to the funds from a life insurance policy or retirement distribution quickly, if the trust is named as beneficiary.

Some disabled children do not have the cognitive ability to manage their own finances. Designated trustees are in place not only to provide financial management services for the child, but also to protect their assets from outside threats in the parents’ absence.

How Do I Fund the Trust? How Much Will I Need?

A trust can only provide as much security as the assets within it allow. The legal formation of the trust is only the first step.

The more difficult part of the process is determining how much money your child will need over the course of his/her lifetime, how many years he/she will need it for, and how much you can reasonably afford to allocate while still reaching your own personal financial goals. Putting a dollar amount on your child’s financial needs can be a daunting task.

When we meet with clients of disabled children, the biggest concern we hear is “How can I make sure my child will be taken care of when I am gone?” No one can replace a parent; however, you can build a financial framework that will provide for the care and financial security of your child in your absence.

Next Steps?

At Aventine Financial Group LLC we are SEC Registered Investment Advisors and Certified Financial Planners™ who specialize in estate planning and financial advice for parents of disabled children. We can help you determine if a Special Needs Trust is right for your family and can guide you step by step through the opening and funding process.

If you would like more information or have questions regarding Special Needs Trusts, we invite you to schedule a complimentary consultation. We look forward to helping you with your financial planning needs.

Always, Frank

Frank J. Fiumecaldo, CFP

Founder & President


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