How to Set Up Special Needs Trust for Your Autistic Child

June 22, 2024

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A special needs trust, also known as a supplemental needs trust, is a legal arrangement set up for the benefit of a person with disabilities. The purpose of a special needs trust is to provide financial security and continuity of care without jeopardizing their eligibility for benefits such as Medicaid and Social Security.

By establishing a special needs trust, parents or caregivers can set aside money, property, or even life insurance benefits to help prepare for the current and future expenses of their loved one with autism. The trust is not owned by the individual with autism but is managed on their behalf. 

This ensures that the assets held within the trust are protected and used to meet the specific needs of the individual.

Types of Special Needs Trusts

As a parent of an autistic child, it’s important to know the different types of special needs trusts you should consider. Each type has its own unique characteristics and benefits. Let’s explore each of them.

First-Party Trusts

A first-party trust, also known as a self-settled trust, is established using the assets owned by the child with autism. In this type of trust, the child’s assets are placed into the trust and managed by a trustee throughout their lifetime. 

The purpose of a first-party trust is to protect the child’s eligibility for government benefits, such as Medicaid and Supplemental Security Income (SSI).

One key aspect of a first-party trust is the Medicaid payback provision. This means that after the child’s passing, any remaining assets in the trust are used to reimburse Medicaid for the expenses incurred on behalf of the child. It’s important to consult with an attorney experienced in special needs planning to ensure compliance with the legal requirements of first-party trusts.

Third-Party Trusts

A third-party trust is established using assets provided by someone other than the child with autism, such as parents, grandparents, or other family members. In this type of trust, the child is the beneficiary but does not own the assets held within the trust. 

Third-party trusts are not subject to Medicaid payback, and any remaining assets after the child’s passing can be distributed according to the trust’s terms.

By utilizing a third-party trust, parents and other family members can ensure that the child’s future needs are met, while also preserving their eligibility for government benefits. This type of trust allows for greater flexibility in distributing assets and can be customized to meet the specific needs of the child and family.

Pooled Special Needs Trusts

Families with limited assets or those who prefer a more streamlined approach may opt for a pooled special needs trust. In this type of trust, a nonprofit organization manages a large trust, and each child with special needs has their own sub-account within it. 

Pooled trusts are beneficial as they are managed by qualified professionals, offering expertise in managing trust funds and navigating government benefit programs.

One advantage of a pooled trust is that it typically has lower costs compared to individually managed trusts. Additionally, pooled trusts offer the convenience of administration, as all financial matters are handled by the nonprofit organization. 

However, it’s important to note that upon the child’s passing, the remaining assets in the trust are typically distributed between the nonprofit organization and Medicaid payback.

Setting Up a Special Needs Trust

Setting up a special needs trust is a crucial step for securing the financial future of your autistic child. This legal tool allows you to manage resources for your child while maintaining their eligibility for public assistance programs. 

Here are the things you need to consider when setting up one:

Legal Considerations

A special needs trust is designed to provide financial security and continuity of care for individuals with disabilities, including those on the autism spectrum. It ensures that your child can receive the necessary support and services without jeopardizing their eligibility for benefits like Medicaid and Social Security.

It’s important to understand that if the presence of the trust fund ever causes the beneficiary to lose eligibility for government assistance, the trust essentially “blows up,” and the funds are distributed among other beneficiaries who can then take care of the disabled person in a more informal fashion. 

This feature helps protect your child’s access to essential benefits while still providing them with additional resources for their specific needs.

To ensure the special needs trust meets the necessary legal requirements, it’s crucial to prepare it in accordance with estate planning laws. These laws vary from state to state, and it is essential to comply with both state and federal eligibility requirements for government benefits that your child receives. 

Seeking assistance from an experienced estate planning attorney who specializes in special needs trusts can provide the guidance needed to establish the trust correctly and navigate the legal complexities involved.

Estate Planning Laws

When it comes to estate planning for individuals with special needs, working with professionals who have expertise in this area is highly recommended. These professionals can assist you in creating trusts that provide for your loved one’s long-term financial security, ensuring a secure future without being a daunting task.

Funding a Special Needs Trust

Once you have set up a special needs trust for your autistic child, it’s important to consider how to fund the trust. Funding is a crucial step in ensuring that there are sufficient resources to meet your child’s current and future needs. 

There are two important aspects to consider when funding a special needs trust. These are as follows:

Asset Limits

To qualify for certain benefits and government assistance programs, there are limits to the assets your child can own. Typically, these limits are set at or below $2,000. It’s important to be aware that exceeding this limit can jeopardize your child’s eligibility for benefits, even if the excess assets are not in the form of cash.

Life Insurance Policies

One effective method of funding a special needs trust is through life insurance policies. Many financial planners recommend survivorship life insurance or second-to-die life insurance policies for this purpose. These policies provide a cost-effective way to ensure that funds are available when they are most needed, typically upon the death of the second insured.

Survivorship or second-to-die life insurance policies cover two individuals, usually the parents or caregivers. These policies are advantageous because they are generally more affordable compared to individual policies. 

Additionally, underwriting for these policies is often less strict, as the risk is spread across two lives. Survivorship policies are available as either whole life or universal life insurance.

By designating the special needs trust as the beneficiary of the life insurance policy, the proceeds can be directed towards the trust upon the death of the second insured. This provides a reliable source of funds to support your child’s ongoing needs, especially when all caregivers are deceased.

It’s important to work closely with an experienced estate planning attorney and financial planner to ensure that the special needs trust is appropriately funded. They can provide guidance on the best strategies for funding the trust based on your unique circumstances. 

By taking the time to properly fund the trust, you can secure the financial well-being of your autistic child both now and in the future.

Sources:

https://www.autismspeaks.org/tool-kit-excerpt/special-needs-trusts

https://palmcitylawyer.com/how-to-create-a-special-needs-trust-for-your-autistic-child

https://www.dandblaw.com/blog/creating-special-needs-trust-children-autism