Planning ahead for the future of a child with special needs requires advanced considerations. Outright gifts of money could accidentally bar your loved one from getting crucial government benefits through Medicaid and other programs.
This means that sheltering assets in what is known as a special needs trust may be the only opportunity to provide financial support during your life and after you pass away. There are two major types of special needs trusts to be considered: a first party and a third party trust. A first party trust is created with the individual’s own assets to protect inherited or earned income so that they do not accidentally exceed Medicaid in asset and income limits.
Any distributions from a first party special needs trust have to be approved by the trustee of that trust. A third party trust is usually funded with the parents’ assets solely for the purposes of caring for that child, but that it will never be in the child’s name. When the parents pass away, the funds inside the trust go to someone other than the child, and these are frequently funded via assets from the parents’ estate or insurance.
These first party trusts can be set up without funds at first but must have its own tax return and tax ID number. The primary purposes of funds inside a first party special needs trust are to cover those expenses beyond what SSI and Medicaid can pay for, such as computers, clothes and more. For more information on leveraging special needs trusts, schedule a consultation with an estate lawyer in Maine and New Hampshire to discuss your situation.