A special needs trust could be an effective estate planning tool for parents of disabled children. This type of trust can be used to help maximize the child’s quality of life both now and into the future when a parent may no longer be around. By placing assets inside of the trust, a child can have access to funds for entertainment and other purposes without losing access to government benefits.
The assets will be managed by a trustee, and the trustee could be a family member or a financial professional. It is possible to have more than one trustee overseeing trust assets. In some cases, the grantor of the trust can direct where funds left in the trust go after the beneficiary passes away. This is generally true if parents create a third-party trust. In such a scenario, it is funded by assets not owned by the beneficiary.
A first-party trust is funded by assets that the special needs person owned prior to the creation of the trust. If this type of document is created, any remaining funds in the trust must be used to repay any benefits that the special needs individual received. Other options include pooled asset trusts or the creation of an ABLE account, which is similar to 529 college savings plan.
For families with special needs individuals, timely careful estate planning may be more important than usual. Creating a trust could make it possible to provide for a child or grandchild while still retaining some level of control over assets. As with other trusts, special needs trusts generally protect assets from creditors and other outside claims.