Families of children with special needs have estate planning issues that can be special, too. Parents want to make sure that their children -- who may require expensive therapies, medications, and support -- can continue to receive excellent care, even after their parents have died. Parents can purchase additional life insurance to help fund this care, but disabled children often also require government help from Medicaid (federal health insurance) and Supplemental Security Income (SSI).
The problem is, in order to qualify for these programs a person can't have assets in their own name that exceed $2,000 (not including a home, a vehicle, and basic personal items). Without some special estate planning, an inheritance would mean that a child wouldn't be eligible for these programs until they'd spent virtually everything that their parents had left for them -- hardly the result most parents want.
A special needs trust is one that can hold a child's inheritance for them so it can be used to supplement (not replace) government benefits. The money in these trusts can be used to pay for expenses not covered by government benefits, but without disqualifying a child from receiving them. A trustee manages the assets for the child's benefit and a child never has any legal right to claim the money -- so government regulations don't include trust assets when determining a child's eligibility for benefits.
Barry Nelson, a Miami lawyer recently profiled in the Wall Street Journal, set up a special needs trust for his son. The trust can be used for expenses beyond what Medicaid or SSI would pay for, including "travel, companionship and cultural experiences" and "purchase of small visual and/or audio equipment for entertainment purposes," such as an iPod or DVD player, according to the trust document. A special needs trust "gives me -- and it gives every parent -- peace of mind," explains Mr. Nelson, who says medical and educational expenses for his son run between $50,000 and $100,000 a year.
For a comprehensive guide to creating a special needs trust, see Special Needs Trust, by Stephen Elias (Nolo).