Planning for your special needs child can be very confusing.  There are multiple different types of trusts and accounts that can be set up for an adult or child with disabilities while you are alive and well, and they all have different names, and different legal terms and conditions for how to access and where the money goes if something happens to them.  As accessing government benefits for a person with disabilities can be a full time job within itself the whole thing can just get overwhelming, and then nothing gets done.  However, you do not need to be left in this wilderness alone – by working with an experienced estate planning attorney you can set up a simple special needs trust that activates upon your death ensuring your child (adult or minor) is taken care of if something happens to you, but does not make them ineligible for the vital government benefits they may need. So without further ado let’s walk through this together.

 

The Difference between First Party and Third Party Special Needs Trusts

The first thing we need to decipher is the types of trusts that exist for individuals with special needs.  Without going down a rabbit hole of the various names and functions of the trusts we are going to divide them into two categories – first party and third party – to make this super simple to understand.

 

Third Party Trusts are Set Up by Parents/Family Members for the Special Needs Individual in their Estate Plan

Third party trusts are set up by another person for the benefit of a special needs individual in their estate plan.  These are the family scenarios where I work hand-in-hand with you.

So for example, a family has three children and one is severely disabled and will never live independently, even as an adult.  The child is dependent on government programs that provide caregivers, equipment and other aid, and will be their entire life.  The parents have lots of life insurance, property and other assets and want to make sure their 3 children are all taken care of and each get an equal share of this after they are gone – but they don’t want to make their special needs child ineligible for the benefits they depend upon to live.  The parents would set up a 3rd party special needs trust for their child with disabilities so that upon their death this child can still receive inheritance from the parents and will have a fund to supplement their life with fun activities and nice things but also not lose their government supplied benefits that support them.  

Now, here is the biggest difference between a third party and a first party trust – when a third party special needs trust is set up for a disabled child, upon that child’s death the money in that third party special needs trust does not have to go to the government to pay anything back.

 

It is Essential for Parents of Children with Special Needs to Set-up a Third Party Trust in their Estate Plan for their Child Who Receives Government Benefits

If a child with special needs inherits money from their parents that gift i.e. inheritance could turn into a curse. Most government programs that provide stability, services, therapies, and support systems to children and adults experiencing disabilities are income and asset contingent. This means if they have assets over $1000 they lose all eligibility for the services they depend on.

For example, my nephew is a high functioning adult on the autism spectrum. He is part of a work training program, and a behavioral therapy program that provides him amazing opportunities to interact with people and places that support him to have the most normal and independent experience possible as a young adult.

But if he were to inherit money from his mother, all of these benefits would cease immediately – disrupting his life completely, and sending him into a spiral of bureaucratic necessities that he is not equipped to deal with on his own.  On top of this, if his benefits are taken away – he would lose all ability to navigate the system and reclaim these benefits.

And this is why his mother has an estate plan that creates a third party special needs trust for her son if she were to pass away. It ensures that anything she leaves him goes into the trust and doesn’t affect his eligibility for the programs he depends upon.  The proceeds in the third party special needs trust can be used by the trustee to provide my nephew with fun life experiences, pay for his rent or maintain his home, and ensure that all his supplemental needs are met for the rest of his life.  And then, upon his death it can be distributed as my nephew chooses to his own family or organizations that are important to him.

 

Act Now, Because It is Impossible to Set up a Third Party Trust After Someone Dies

Time and time again my office gets phone calls trying to quickly set up a Special Needs Trust after the death of someone’s parents.  The adult child with special needs is going to inherit significant assets from their parents that will make them ineligible to continue receiving government aid. Don’t Let This Happen To You! The individual is in crisis mode because they are facing the possibility of losing all of their benefits that they depend on for stability in their life.  The unfortunate reality is that it is impossible to set up a third party special needs trust after someone dies. It is officially too late. I cannot help you.

The special needs adult will have to go through a period of time ineligible for benefits as a First Party Special Needs trust is set-up for them.  And first party trusts are complicated to administrate, complicated and expensive to create, and complicated to manage. They cannot be done in 24 hours, and you need a very specialized attorney to create them, and a trustee to administrate them.  Finally, the money in the trust does not stay with the family after the special needs individual dies, as the requirements of first party trusts always include some type of government reimbursement mechanism.  In short, a first party trust is not the best solution – and sometimes it isn’t an available solution at all.

 

Parents of Children with Disabilities MUST Have an Estate Plan Including a Special Needs Trust

This is why it is ESSENTIAL for any parent of a child with special needs to create a comprehensive estate plan with an experienced estate planning attorney and establish a third party special needs trust for their child in their estate plan. You must work with an attorney to set up this type of trust and ensure that everything is set up correctly so that your special needs child’s future isn’t endangered when they lose you. Remember, your procrastination could cost them everything they depend on in their future if you die without a special needs trust in place for them.

If you need help navigating this confusing area and want to make sure your child with disabilities is taken care of no matter what happens to you please book an appointment with my office today by clicking the link below.