A special needs trust is able to provide additional benefits for a child that Medicaid and Supplemental Security Income cannot. It can even do this in a way that does not interfere with the child's government benefits. Depending on how it is set up, it can function when a parent is alive or wait until after the parent's death to begin payouts.
The first step in preparing a special needs trust is selecting a trustee to handle all of the disbursements from the trust. This person should be trustworthy and skilled at managing money to ensure that he or she can follow the parent's wishes properly. After the parent's death, the trustee also facilitates the transfer of funds from the estate to the trust.
The trustee can only use the funds in the trust for specific purposes, such as medical and dental bills, education, rehabilitation, computer equipment and home health aides. This means that the trustee cannot use them for things like food, housing, utilities, home insurance and cash payments to the child. Anybody leaving funds to the trust as the beneficiary should remember to name the trust and not the child. It is also important to remember that if the child has over $2,000 in assets, he or she may lose government benefits.
During the estate planning process, an attorney can help parents of special needs children set up this trust, also called a supplemental care trust, to care for the child's future medical needs. An attorney could explain any information that is relevant to designing this trust and offer the parents advice on how to set it up.
Source: PACER.org, "The Special Needs Trust", October 24, 2014