You're probably exploring and planning supports that will help your special needs baby. But what about your child's future, especially if living independently won't happen?
Simply saving up money in an account for the child will disqualify him for all Supplemental Security Income program benefits if the account holds more than $2,000. Some well-intended families want to help their loved one who has disabilities and are surprised to find that the money they've donated to a fund in that person's name actually cuts off benefits.
Placing money in an account in another person's name may not help, either. Even if that person is completely trustworthy, bankruptcy, lawsuit, theft, divorce or other loss could wipe out those funds and leave your child with nothing.
A supplemental needs trust is the financial vehicle which can provide for things beyond the basics without disqualifying your child from benefits. The supplemental needs trust can provide life-enhancing experiences, products and services for your child. Even if your child does become independent someday, a special needs trust isn't dissolved and may be used to benefit your child. You can also set up a trust that takes effect upon your death as either a stand-alone document or as part of your will.
There are a few kinds of supplemental needs trusts:
FIRST PARTY SPECIAL NEEDS TRUST.
Money is paid directly to the person with special needs who sets up his own plan. Many people use this kind of trust if they become disabled through an accident and receive a large settlement. The funds don't endanger their benefits but any funds not used revert to the government to reimburse the cost of any care they received. Any leftover money may go to the person's beneficiaries.
THIRD PARTY SPECIAL NEEDS TRUST.
Anyone can set up a third party special needs trust: grandparents, parents, aunts and uncles, godparents or anyone else. Some families like to donate to the trust as part of birthday gifts or in the same way they would periodically designate funds for college for their other children. Loved ones can also fund a third party special need trust through life insurance benefits or through investments or real estate rentals. The latter two can help the person with special needs receive residual income for life. Any leftover funds reverts to the designated beneficiaries after the person passes away.
Families struggling to sufficiently fund and maintain a trust may consider this as a more affordable option. The family doesn't pay exorbitant trust administrative fees. Other users share the funds in the pool. When the person with disabilities passes away, any money left over remains in the pooled trust and does not revert to the family.
Be sure to seek legal and financial counsel to ensure that you select the right kind of trust that will ensure your child's comfort in years to come.