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When government benefits are at risk: supporting your child with special needs

About five percent of school-aged children in the United States live with a disability. Their diagnoses include vision, hearing and orthopedic impairments as well as serious emotional disturbance, autism and specific learning disabilities. In many cases these children continue to depend on the multi-pronged support of others into adulthood.

If you have a son or daughter with a disability you may be wondering how you can help him or her stay financially secure even after you die. Obviously you will want to leave assets to your child. But this is where it gets tricky; an outright inheritance of some kinds of assets could jeopardize your child’s eligibility for government benefits such as Supplemental Security Income (SSI) and Medi-Cal, California’s version of the Medicaid program. Even a bequest of $10,000 in a bank account is enough for your child to lose these benefits. The solution to your dilemma could be a special needs or supplemental needs trust.

Valid for the lifetime of the beneficiary or until the funds are depleted, special needs trusts come with their own set of rules. The beneficiary cannot revoke the trust and doesn’t own its assets. He or she has no control over the funds or over the frequency and amount of distributions. The spending power for the trust lies solely with the trustee. She can use the funds to pay for pretty much anything — from health care services to vacations. The one thing she may not do is hand cash directly to the beneficiary.

A word of caution at this point: You should pick the trustee for the special needs trust wisely. Not only will the person have to work with health care providers and government agencies, he or she will also have to maintain close contact with your child, which means the two personalities should be compatible. Theoretically, you as the grantor of the trust could name yourself or another relative as the trustee, but in some cases it might be advisable to pick a more independent party. Either way, the beauty of a special needs trust is that the funds aren’t owned or controlled by the beneficiary and will therefore not limit the eligibility of your child with special needs to receive benefits.

By Kevin J. Moore