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Consider a special needs trust to protect your disabled child

As part of our estate planning practice, we advise the parents of minor and adult children with disabilities in Texas about how to provide for their kids financially after the parents pass away. One of the most important vehicles to consider to meet this need is the special needs trust.

Preserve government benefits

A basic principle for many families that have kids with disabilities is that in most cases it is important not to leave or gift money or assets directly to the disabled children. Most people with disabilities, unless they are part of wealthy families that choose to support them, will need public benefits to help pay for medical and long-term care.

(For families of substantial means, other types of trusts should also be discussed with an attorney to determine how to meet family goals for their children with disabilities.)

A Texan with disabilities may be eligible for Supplemental Security Income or SSI, a federal cash support program for which the disabled person may be eligible based on low income and assets. The other primary benefit is Texas Medicaid, a program that provides health insurance and long-term supports such as group home care for persons with disabilities. Medicaid eligibility also requires a low asset level.

Special needs trust basics

A special needs trust is usually set up by parents or grandparents of a disabled individual. It is important that no money that belongs to the child in his or her own right be put into the trust. Only money from people other than the disabled individual may be put into the trust.

Assets held by a qualifying special needs trust are not counted as assets owned by the person with disabilities directly, preserving their eligibility for SSI, Medicaid and similar government programs.

The person who sets up the trust should tell relatives and friends who may want to leave or give money to the disabled person about the trust so that they can direct their contributions to the trust and not to the individual directly, whether during the donor's lifetime or through a will or even through a beneficiary designation in an insurance policy or retirement account.

When the special needs trust is created, the creator must choose a trustee to manage the trust, including making distributions and payments on behalf of the beneficiary, who is the person with the disability. Trustees might be family members, friends, legal or accounting professionals, or trust companies or banks that specialize in trust management.

A special needs trust may pay for things that supplement what the public benefits are already covering. Examples of allowable distributions from the trust could be in most situations leisure activities, travel, or therapy or medical equipment not covered by Medicaid.

It cannot be overemphasized that this post contains general information about an extremely complicated area of estate planning that is controlled by both federal and state laws. Applicable law may vary with the situation. Every family and disabled individual is unique and should discuss thoroughly with an experienced attorney their circumstances and goals for the child with a disability.

The lawyer will carefully consider and explain the options available to protect the individual with disabilities.

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