Any parent of a special-needs child knows how useful New York State benefits such as Medicaid, Supplemental Security Income (SSI), or housing assistance could be in contributing to treatment and care costs. Parents can qualify for these benefits by verifying that their annual income is below a certain amount and passing a stringent assets test.
What many parents do not know is that when a special-needs child receives an inheritance that puts them even one dollar over the eligibility threshold, they can be disqualified from receiving benefits.
A common misconception is that the best way to qualify for these government programs is to disinherit your child. Sure, disinheritance can maintain eligibility. But is SSI or Medicaid income alone sufficient to support a child with special needs for the rest of their life? Not likely.
So, how does a parent leave money for special-needs care without preventing their child from receiving government aid? The answer lies with a special needs trust.
A special needs trust —also known as a supplemental needs trust in New York— is like a basket that holds assets for your special-needs child’s benefit without making the child the actual owner of the assets. Therefore, your loved one will not have to report these assets when they apply for government benefits. You can learn more about trusts generally in this article.
Appointing a Trustee
Initially, the parent has the duty to cover various costs associated with raising a special-needs child. But, in the event that the parent suffers cognitive decline, disability, or death, an appointed trustee takes over the duty and directs the funds to cover the child’s expenses.
A trustee has a fiduciary relationship with the trust’s beneficiary. Specifically, the trustee has a duty to act in the best interest of the beneficiary, to exercise care and skill when managing the trust, to be impartial when administering the trust, and must keep detailed and accurate records of the trust’s financial transactions. With these responsibilities in mind, you want to be sure you appoint a trustee that you can depend on to properly fulfill their fiduciary duties. A prudent parent may even elect to hire an experienced an experienced attorney to assist the trustee in executing their duties.
How the Funds Are Used
The main idea is that the funds in the special needs trust are an addition to Medicaid or SSI, rather than a replacement. Typically, government benefits are used to cover medical and treatment costs.
On the other hand, the funds in the trust pay for expenses to enhance your child’s quality of life. This can include recreational activities, specialized education, therapy and residential or vehicular modifications. For example, a special needs trust can help pay for your loved one to go on a much-deserved vacation, which would otherwise not be covered by Medicaid or SSI. Your estate planning attorney can ensure that your funds are managed properly.
Funding the Trust
Special needs trusts can be funded with a variety of assets including real estate, retirement accounts, and life insurance policy payouts. For parents who do not own enough liquid assets to fund a special needs trust, life insurance is a common solution to provide the trust with enough money to provide for a special-needs child. In other words, having a special needs trust can allow your loved one to collect the benefits from a life insurance plan without the increased income disqualifying them from Medicaid or other benefits.
A special needs trust is a great way to make sure that your child is taken care of when you can no longer provide for them. Special needs trusts can allow your child to maintain their quality of life without losing access to government benefits.
If you want to learn more about creating a special needs trust, contact The Chamberlain Firm. We are experienced New York estate planning attorneys who can help you understand your options. Call us today at (201) 273-9763 to set up a free consultation. Check out our Insights Articles for more estate planning articles.