5 Things to Know Before Starting a Special Needs Trust
Raising children with special needs comes with a lot of financial challenges, which can be overwhelming for parents. One way to ease your anxieties is to start a special needs trust — a savings account for your child that gives you one specific place to store funds for their future.
Learn more below on what’s important to know about special needs trusts, the types of trusts and mistakes to avoid.
1. What goes in a special needs trust?
You can keep your savings in this trust. If your family members give money to your child, or you receive an insurance claim settlement, you can keep it here.
Don’t worry — the money you keep in the trust will not affect your child’s eligibility for Supplemental Security Income (SSI) or Medicaid.
Even if you do not have a large amount of money, set up a trust now. You can name the trust as the beneficiary of your estate and life insurance policy. It will prevent your assets from getting passed to your child after your death.
2. Appointing a trustee
Appoint a trustee to take care of the assets in the trust after you have passed away. You can appoint a family member as the trustee.
Are you wondering why you cannot make your child the beneficiary of your estate? Well, if your child’s assets are worth more than $2000, they may get disqualified for the federal benefits.
There are two types of special needs trusts: first-party and third-party.
3. First-party special needs trust
The primary source of funding is the beneficiary’s assets.
When your child receives a huge chunk of money, he is likely to cross the $2,000 threshold and become ineligible for the federal benefits. However, if the money is kept in this trust, it will not be considered as an income or asset. Hence, it will not interfere with the federal benefits of your child.
Grandparents, parents, guardians, and courts can create a first-party stand-alone trust. An attorney has to draft the trust, and the court has to approve it. The trustee will manage this trust. In the absence of a willing trustee, an institutional trustee has to be there.
4. Pooled special needs trust
This type of trust is a flexible sub-trust. A child can maintain it with their grandparent, parent, or any other appointed guardian. Usually, nonprofit organizations create this type of trust. They mingle the child’s assets with the master’s special needs trust.
5. Third-party special needs trust
Anyone, apart from your child, can create a third-party special needs trust for them. The trust is in the name of the third-party, who owns the funds. The best part is that creditors cannot touch this trust. Friends and family members can freely contribute to this fund.
Valentina Wilson is a personal financial blogger. She loves to analyze personal financial matters and help others manage their finances in a better way.