Special needs trusts are not just for wealthy families

A special needs trust or supplemental care trust can help families make sure their children are cared for both while they are alive and even after they are no longer there to look out of them. Although specifics vary from state to state, in general, it cannot be used to cover basic living expenses, such as food, utilities or housing. It can be used to cover important “extras,” such as transportation, computer equipment and home health aids. A special needs trust can be especially valuable to the family in pricey areas like California.

A special needs trust is a way to secure funds for a child without endangering their entitlement to government benefits. In general, having assets of $2000 or more in the name of the child will disqualify them for government benefits. Having a trust allows families to set aside funds for the child’s sole benefit without putting any of it in their name.

A trust is an instrument that can be hard to understand. This is part of why trust planning should be started at an early stage in the child’s life. Another reason to start early is to allow for time to accumulate adequate assets. Few people are wealthy enough to fund a trust adequately overnight.

However, even people of relatively modest means can accumulate trust property over time. Here are some means to finance a trust that many people may have available to then even if they are not wealthy: Life insurance; government benefits, such as Social Security survivor benefits; savings; and gifts from friends and family. Having a trust to help cover a child’s needs can protect both the child and the rest of the family. In spite of their reputation, trusts are not just for the rich.

Source: Pacer.org, “The Special Needs Trust“, October 18, 2014