Special Planning for Special Needs Children

Creating a Special Needs Trust can help provide for a child's care – but maximizing the benefit may require communication and coordination

Special children require special planning. One of the risks that a family with a special needs child may have is that a well-meaning loved one could accidentally disqualify the child from receiving government benefits.

Consider this example: Joe is 22 years old and has a birth defect that deprives him of the ability to walk or have full use of his hands. He lives in subsidized housing and receives a monthly $800 Supplemental Security Income (SSI) payment from the government.

Joe also receives financial assistance from a Special Needs Trust (SNT) that his parents created to help provide for his care and needs.

Joe’s Aunt Mary dies and, unbeknown to his parents, leaves Joe $60,000, which he receives directly from her estate and deposits in his bank account. Her thoughtful gesture ends up creating major problems for Joe, since the presence of several thousand dollars in his bank account puts his eligibility for continued assistance at risk.

Issues such as Joe’s can pose serious financial challenges for a special needs family, and professionally guided planning and responses can help prevent it.

Strategies. Whether he knew it or not, Joe had a few options that would have allowed him to benefit from Aunt Mary’s generosity without jeopardizing his government assistance:

First, the first-party Special Needs Trust that Joe's parents created should include a government reimbursement or "payback" provision. If Joe transfers his inheritance into the trust, his eligibility for government assistance should not be disturbed.
On a less prudent level, Joe could have spent all of the money during the calendar month in which he received it, and his month-end bank balance would not have been increased to the point that he would lose eligibility.
Also, Joe could have purchased or invested in exempt resources, such as an automobile or a home.

As for Aunt Mary, there are things that she could have done to prevent the problems that Joe experienced.

If she had left the $60,000 to the Special Needs Trust created by Joe's parents, there would have been no threat to his eligibility for certain services.

Also, a properly prepared Special Needs Trust should include provisions that allow for the establishment of separate accounts. With proper coordination, Aunt Mary could have designated different residual beneficiaries than those identified in the Special Needs Trust.

A Special Needs Trust should also specifically state that no accounts will be mutually maintained by individuals other than the trustors (in this case, Joe’s parents), unless a donor has specifically mandated their inclusion.

Communication. If you have set up a Special Needs Trust for your child or plan to do so in the future, it's important that you let close friends and relatives know, so that those loved ones will know that any contributions they wish to make should go into that Trust.