If your family includes a disabled child or grandchild, there are special considerations when making an estate plan. A primary concern is to assure that that the disabled child (minor and adult) is provided for financially, so that he or she has an adequate quality of life and standard of living. There are two types of trusts that can be used to assist families in reaching this goal.

The first is a Supplemental Needs Trust, the purpose of which is to enhance the disabled child’s standard of living and quality of life without jeopardizing the disabled child’s eligibility for public benefits in the present or in the future. The trust is funded and controlled by a third party, such as a parent or grandparent, not the disabled child. By means of a lifetime gift into the trust or a gift into the trust upon the death of a parent or grandparent, this trust can be funded with any type of asset, including life insurance, bank accounts, investment accounts, real estate, stocks, bonds or other securities.

Funds in a Supplemental Needs Trusts are used literally to supplement the daily essential needs of the disabled child, and therefore cannot be used for the necessities of life such as food, utilities, clothing or shelter. However, the funds may be used to provide “nonessential” items such as medical or therapeutic care not covered by public benefits, vehicles and related expenses, expenses for travel, educational or vocational training, educational camps, vacations, computers and cell phones.

The second type of trust is a Special Needs Trust which his designed to preserve a disabled child’s public benefits, protect funds that have come into the child’s name and provide a trust fund which can be used to enhance the child’s standard of living or quality of life. The Special Needs Trust differs from the Supplemental Needs Trust in that a Special Needs Trust contains assets already owned by the child, whereas in a Supplemental Needs Trust assets are never owned by the child because they are retained and managed in the trust at the outset.

Funds for a Special Needs Trust can come from inheritance or gifts in the name of the child or settlement proceeds from a personal injury or medical malpractice lawsuit. The funds are used substantially in the same way as the Supplemental Needs Trust as outlined above but there are more restrictions. In addition, upon the death of the child the trust must use any remaining funds to reimburse or “payback” the state for public benefits provided to the child during his or her life.

If you would like more information about these trusts or estate planning for disabled children please contact me.