Trust options for securing the future of your special needs child

On Behalf of | Feb 9, 2023 | Special Needs Planning

Perhaps your 20-year-old daughter was the victim of a serious vehicle crash that left her with a permanent disability.

To ensure she has a financially secure future, you may wish to look into the options available for establishing a special needs trust.

About special needs trusts

The purpose of a special needs trust is to hold funds set aside for the care of the beneficiary while protecting the government benefits that are necessary for his or her support. In order to qualify for Medicaid or Supplemental Security Income, the special needs person can only own up to $2,000 in cash assets and no more. For example, any insurance settlement your daughter receives could jeopardize the receipt of her government benefits. This is where a special needs trust comes in.

First- and third-party trusts

A first-party special needs trust holds assets belonging to the beneficiary, such as an inheritance or the proceeds from a vehicle accident settlement. When the beneficiary dies, the remaining funds reimburse the government for the cost of his or her medical care. A family member such as a grandparent is often the person who sets up a third-party trust for the purpose of helping the beneficiary. With a third-party special needs trust, there is no government payback. Any remaining funds pass to family members or to a charity.

The pooled trust

A third option to consider for the benefit of your daughter is a pooled trust set up by a charity. Here, beneficiaries pool their resources for investment purposes while still maintaining their own separate accounts. Once again, funds remaining after your daughter dies would reimburse the government for her medical care, but a portion would also go to the charity.