The National Center for Education Statistics states that the number of special needs children in the United States rose by about one million in the space of a decade. Families with these children often face distinct challenges, and various strategies may make life easier. One example is a “special needs trust,” a type of estate planning tool specifically geared towards children with special needs. How does a special needs trust work, and why might you want to create one? This is a common question, and an experienced special needs trust lawyer in California may be able to explain the next steps in more detail. 

You Cannot Rely on Medicaid Alone

Parents and guardians might be content with the protection and support offered by Medicaid. As many know, Medicaid is a “needs-tested” government program designed to provide for low-income families and disabled individuals. But can you really rely on Medicaid to provide for all your disabled child’s needs?

The clue is in the name. Medicaid generally focuses on financial support for medical costs only. If you pass away, your disabled child might encounter a wide range of living costs outside of their medical needs. A clear example is the cost of their utilities, including phone bills, internet bills, heating, electricity, insurance, and so on. They might also need extra money for food, entertainment, transport, and much more.

A special needs trust can address these funding gaps. With this type of estate planning tool, you can continue to maintain your child’s standard of living while also ensuring they remain eligible for Medicaid. If you set up this trust correctly, your child will be able to access effective treatment while using trust funds to cover any additional expenses. 

Supplemental Security Income and Medicaid Follow Different Trust Rules

You might assume that if a trust allows your child to continue qualifying for Supplemental Security Income (SSI), it will achieve the same result for Medicaid eligibility. However, it is important to note that SSI and Medicaid follow slightly different trust rules. According to the Social Security Administration’s official website, trusts that do not “count” as wealth for SSI purposes may still affect Medicaid eligibility. 

This highlights the need to take a very careful approach when creating special needs trusts. If you’re going to create a trust to provide for your disabled child, you need to make sure it will not affect eligibility for Medicaid, SSI, and any other needs-tested programs your child currently qualifies for. 

You Will Not Be Around to Take Care of Your Child Forever

The simple truth is that most children outlive their parents. Even if you are confident about your ability to care for your child right now, you need to start planning for what happens after you are gone. Disabled individuals are particularly vulnerable to the pressures of life, and financial support can make a real difference. 

An important part of the trust creation process is the selection of a trustee. This individual shoulders great responsibility, as they are in charge of managing the assets intended to support the disabled individual’s lifestyle. A trustee makes financial decisions on behalf of the disabled individual and for their benefit. For example, they might invest the funds effectively. 

Proper management of trust assets is especially important when you consider the potential effects of inflation after your passing. Without proper management, the wealth you leave your disabled child could be wiped out by inflation before they pass away. As a result, it might not last their entire lifetime, and they may encounter financial pressures in old age. 

Trustees are also important because they can shield your child’s assets from various threats. Depending on the nature of their disability, your loved one might be more vulnerable to certain scams and frauds. With a trustee managing the assets, your child must get permission before accessing these funds to fund suspicious purchases. 

Even if your disabled child is mentally capable enough to detect potential scams, a spendthrift provision is a logical choice. This ensures that your child can never spend all of the trust funds at once. Instead, they will receive gradual, intermittent distributions. If you schedule these distributions appropriately, the trust assets will support your child’s standard of living for the foreseeable future. 

Can’t I Rely on My Family Members to Take Care of My Disabled Child?

You might be planning to simply set aside some money for your child and instruct your family members to look after your disabled child after you are gone. But is this a realistic strategy? First, you should know that your family members might also pass away, possibly earlier than you expect. If you have a spouse, their life expectancy is probably about the same as yours. If your trusted family members pass away and there is no one left to look after your child, your funds might pass into the wrong hands. Your child might also inherit the funds and lose Medicaid eligibility.

You should also know that unless you formalize this arrangement through proper legal avenues, nothing will stop your family members from using these funds for their own expenses. Although you might trust your loved ones to take on this responsibility, there is no telling what the future might bring. They may encounter financial issues or lose their job, and the temptation to use these funds for their own needs may be too great. 

In contrast, a trustee must follow very specific rules and instructions. When you create a special needs trust and select a trustee, you establish a legal contract that the trustee must adhere to. If they breach their fiduciary duty to your disabled child, they could face severe legal consequences. 

Learn More About Special Needs Trusts With the Elderly Care Law Firm

If you would like to learn more about special needs trusts, consider speaking with the Elderly Care Law Firm. We know how challenging it can be to provide for loved ones who have special, unique needs. The truth is that an online article cannot deliver personalized advice tailored to your family’s specific circumstances. Each disabled child has certain goals and priorities, and families must adjust their strategies accordingly. Schedule a consultation and discuss your unique story with our special needs trust lawyers in California.