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10 Tips for Using a Special Needs Trust to Protect Your Child

The importance of a special needs trust

When caring for a child or loved one with special needs, it’s important to understand what resources are available to you, and what steps can be taken to provide quality care and financial security is vital to your dependent’s lifetime needs. Careful planning and a properly executed special needs trust can protect your loved ones and help secure their well-being today and tomorrow. Below are 10 tips for parents and caregivers to consider.


10 Priceless Tips to Consider When Planning for a Child with Special Needs


Tip #1: Avoid Disinheriting a Special Needs Child

Many disabled children receive Supplemental Security Income (“SSI”), Medicaid or other government need-base benefits to provide food, shelter and/or medical care. The loved ones of the special needs beneficiaries may have been advised to disinherit them – beneficiaries who need their help most – to protect those beneficiaries’ public benefits. But public benefits rarely provide more than basic needs. And this solution (which normally involves leaving the inheritance to another sibling) does not allow loved ones to help their special needs beneficiaries after they themselves become incapacitated or die. The best solution is for loved ones to create a special needs trust to hold the inheritance of a special needs beneficiary.


Tip #2:  Don’t Ignore the Special Needs of Your Child When Creating Your Estate Plan

Estate plans that are not designed with a special needs beneficiary in mind will probably render the beneficiary ineligible for essential government benefits. A properly designed special needs trust promotes the comfort and happiness of the special needs beneficiary without sacrificing eligibility. Special needs can include medical and dental expenses, annual independent check-ups, necessary or desirable equipment (for example, a specially equipped van), training and education, insurance, transportation and essential dietary needs. If the trust is sufficiently funded, the disabled person can also receive electronic equipment & appliances, computers, vacations, movies, payments for a companion, and other self-esteem and quality-of-life enhancing expenses – the sorts of things families now provide to their child or other special needs beneficiary.


Tip # 3: Invite Others to Contribute to the Special Needs Trust

A key benefit of creating special needs trust is that the beneficiary’s extended family and friends can make bequests to the trust as part of their estate plan. For example, these family members and friends can name the special needs trust as the beneficiary of their revocable trust or will, and they can also name the special needs trust as a beneficiary of life insurance or retirement benefits. Unfortunately, many extended family members may not be aware that a trust exists, or that they could contribute money to the special needs trust as an inheritance upon their death.


Tip #4: Don’t Rely on Siblings to Use Their Money for the Benefit of a Special Needs Child(ren)

Many family members rely on their other children to provide, from their own inheritances, for a child with special needs. This can be a temporary solution for a brief time, such as during a brief incapacity if their other children are financially secure and have money to spare. However, it is not a solution that will protect a child with special needs after the death of the parents or when siblings have their own expenses and financial priorities. What if an inheriting sibling divorces or loses a lawsuit? His or her spouse (or a judgment creditor) may be entitled to half of it and will likely not care for the child with special needs. What if the sibling dies or becomes incapacitated while the child with special needs is still living? Will his or her heirs care for the child with special needs as thoughtfully and completely as the sibling did? Siblings of a child with special needs often feel a great responsibility for that child and have felt so all of their lives. When parents provide clear instructions and a helpful structure, they lessen the burden on all their children and support a loving and involved relationship among them.


Tip #5: Exercise Extreme Caution in Choosing a Trustee

Loved ones or family members can manage the special needs trust while alive and well if they are willing to serve and have proper training and guidance. Once the family member or loved one is no longer able to serve as trustee, they can choose who will serve according to the instructions provided in the trust. Families or loved ones who create special needs trust may choose a team of advisors and/or a professional trustee to serve. Whomever they choose, it is crucial that the trustee is financially savvy, well-organized and of course, ethical.


Tip #6: Procrastinating Can be Costly for Your Special Needs Child(ren)

None of us know when we may die or become incapacitated. It is important for parents with a special needs child(ren) to plan early, just as they should for other dependents such as minor children. However, unlike most other beneficiaries, special needs beneficiaries may never be able to compensate for a failure to plan. Minor beneficiaries without special needs can obtain more resources as they reach adulthood and can work to meet essential needs, but special needs beneficiaries may never have that ability.


Tip # 7: A Special Needs Trust Does Not Have to be Rigid

Some special needs trusts are unnecessarily inflexible and generic. Although an attorney with some knowledge of the area can protect almost any trust from invalidating the beneficiary’s public benefits, many trusts are not customized to the beneficiary’s particular needs. Thus the beneficiary fails to receive the benefits that the parents or others provided when they were alive. Further, make sure you are using the right type of Special Needs Trust for the situation. A Self-Settled Special Needs Trust, which is funded with the individual with disabilities own assets, must contain a payback provision to repay government benefits at death. However, a Third-Party Trust, which is funded by a parent, grandparent or other family member for the benefit for the individual with disabilities, does not need to have a payback provision. Hence, Third-Party Special Needs Trust assets can pass to other family members at the beneficiary’s death.


Tip # 8: Prepare a Letter of Intent

A detailed letter of intent is your opportunity to step away from the legalese of your will or trust and to be more personal. This letter is especially important for a new caregiver or non-parent trustee, as it provides information concerning the day-to-day activities, unique likes, dislikes, needs, preferences, and other critical information concerning the child with special needs.


Tip #9: Consider Using Life Insurance to Fund a Special Needs Trust

Second-to-die policies that pay after both parents’ deaths are a useful tool especially when a properly established special needs trust is a named beneficiary. A knowledgeable financial advisor or insurance agent may assist you in determining whether life insurance is appropriate and which policy is best for you.


Tip # 10: Review the Titling and Beneficiary Designation on All Assets

It is essential that you ensure no assets inadvertently pass directly to a child with special needs, potentially resulting in disqualification from public need base benefits, such a Medicaid and SSI.


It’s important to remember that each family’s circumstances are unique, so parents and caregivers should consider their situation carefully, and seek professional assistance with their special needs planning. For assistance in planning for a child with special needs, give McDonald Law Firm a call at (443) 741-1088 to schedule a no obligation consultation with Andre O. McDonald; a knowledgeable Howard County special needs planning attorney.



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For help with estate planning, special needs planning or elder law throughout Howard, Montgomery, Prince George’s, Anne Arundel, and Baltimore County; and Baltimore City, contact McDonald Law Firm, LLC.

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