The Basics of Setting Up a Trust for Special Needs Children

A Special Needs Trust or SNT is a financial tool designed to support children with special needs in the event of a parent or guardian's death. It is meant to cover immediate and long term expenses of caring for the child while making sure that the beneficiary does not lose government benefits.

How Special Needs Trusts Work 

The most common arrangement made by parents of special needs children is to first establish the trust and thereafter transfer into it property and other assets. Parents can continue to fund the trust while still alive.  

A third party - usually a relative - is then appointed to authorize any payments made from the fund on behalf of the beneficiary when the parent(s) passes away. This party - the trustee - can collaborate with a guardian or legal representative on how the assets can be used to benefit the beneficiary.

Bear in mind that there are different forms or types of SNTs. Parents can appoint individuals or organizations as trustees, and the trust can be funded in different ways.

Why A Special Needs Trust is Necessary 

Planning financially for children with disabilities requires parents to make special provisions. In addition to setting aside funds for medical equipment, hospital visits, educational resources and other needs, the trust must also consider the life expectancy of the child.

Many special needs children live well into adulthood but are not able to care for themselves or become financially independent adults. This means a substantial amount of assets is needed to pay for expenses, and these expenses may span an entire adult lifetime.

Unfortunately, governments generally grant benefits only when the child or person with disabilities has low or limited income and assets. If, for instance, a special needs child receives an inheritance greater than the set limit, government benefits may be cut off. Leaving behind assets in a trust is, therefore, a good way to protect these resources.

How to Set Up a Special Needs Trust 

An experienced attorney is invaluable and can help navigate complex laws and requirements of special needs trusts. Hiring a legal representative who specializes in this area can help get the process started. You will also have a professional in your corner to discuss options in detail.

One of the first steps in the process is to choose the best type of trust to establish. Many parents prefer the Family Trust, in which funds and resources are assigned to pay all other expenses except for those covered by government benefits.

Funding the Trust 

The trust can be funded by either the parents and/or other members of the family. In some cases, the trust is established with the beneficiary's own existing assets. This is often the case when the beneficiary becomes disabled and is given a settlement or payout or is an adult who accumulated assets before an injury.   

Whoever is responsible for funding the trust - known as the grantor - can transfer assets into the trust directly or through a life insurance policy. If the parents of the beneficiary are a married couple, it is often recommended to take out survivorship life insurance or second-to-die policies where the trust is funded only after the second parent dies.

Choosing the Trustee 

While many parents prefer a relative to act as a trustee, others prefer professionals or even organizations to make financial decisions on behalf of the beneficiary. Both options have their merits and drawbacks.

One advantage of appointing a family member is, of course, familiarity. A relative, such as a sibling with intimate knowledge of the beneficiary and their preferences, may be in a better position to use left assets appropriately.

Leaving a relative in charge may be beneficial if they are involved in the care of the child. This enables them to assign assets according to the beneficiary's changing needs and development. However, if they are inexperienced, it would be best to consider giving management of the trust to an organization or legal guardian.

Parents must also be careful not to forget to cater to the financial needs of their other children. Though they might not require as much provision as those with special needs, a plan still needs to be put in place through life insurance policies and other available means.

Parents must also decide who receives assets when the beneficiary dies. It is not uncommon for the beneficiary's funds and other resources to be given to surviving siblings and relatives.

Making sure children are financially cared for in the event of your death is of vital importance, more so when the beneficiaries have special needs or are unable to become financially independent. Speak to a lawyer with expertise in Special Needs Trusts to ensure financial security for your loved ones.