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Special needs trust: Advantages and disadvantages

Many California couples have children with special needs and wonder how they can ensure that their children will be taken care of after they die. One option that is popular is a special needs trust. There are both advantages and disadvantages to these vehicles that should be considered.

One of the biggest concerns that people have is helping their children to remain eligible for Supplemental Security Income and Medicaid. Both programs have income and asset limits, meaning that inheritances that pass directly to the children as lump sums may render them ineligible for both programs. Special needs trusts help parents to avoid this problem.

Money that is placed in a special needs trust may be used to pay for the child's other expenses, including rent, food and assorted needs. Since it is held in a trust, the money does not impact the child's continued eligibility for Medicaid and SSI. Creditors are also unable to touch the assets held in the trust, providing further protection for the child. A disadvantage is that when the trust ends, Medicaid can seek a reimbursement from it for the money that the program spent on the child's care needs. This means that the remainder may be wiped out.

Parents who want to learn more about whether or not a special needs trust is the best option for their child may want to meet with an estate planning attorney who has experience with these types of documents. They need to be carefully prepared so that they meet all legal requirements, and a failure to do so could be financially devastating.

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