A special needs child born to parents in Arizona often will require many services that can cost millions to deliver over the child’s lifetime. Managing this extreme bill requires careful planning and structuring. It can be daunting but it is not insurmountable.
What Parents of Special Needs Children Need to Know
A tool that is often used to plan for a special needs child’s lifetime is a special needs trust. This is a trust that is structured to hold and manage assets so that the child who will require services throughout his or her life may continue to receive Supplemental Social Security income, ALTCS and other benefits supplied by the government.
Special Needs Trusts
There are two kinds of special needs trusts: one is a self-settled trust and the other is a third-party trust. A self-settled trust is used when the disabled person comes into money that will jeopardize his/her continue eligibility for government benefits. For example, your disabled child inherits $100,000 from a life insurance policy. A self-settled special needs trust gets established to hold onto that money in a way that allows your child to keep getting SSI, ALTCS, and other income dependent benefits. These are very specialized trusts, subject to many regulations.
Third party special needs trusts are established by someone for the benefit of another. These are the most popular type of special needs trusts. People typically set these up in their own estate planning documents. As parents, you can set up a Revocable Living Trust, which includes a special needs trust for your disabled child. The main reason that your child can have money in the special needs trust and get benefits is because your child has absolutely no control over those special needs funds. That “lack of control” is the ticket.
These special needs trusts may not provide food, shelter, or any asset which can be converted to food or shelter to the beneficiary. Other services such as medical treatments including different therapies, education, entertainment, travel, companionship, clothing, furniture and furnishings (such as a television or computer), and some utilities may be paid for by the special needs trust. Rarely can the special needs trust beneficiary receive cash from the trust although there are some limited exceptions.
When a disabled person or a person with special needs applies for disability benefits, he or she must show that they are unable to support themselves financially. If money is saved in a traditional savings account, it will be counted against their ability to qualify for disability benefits. Because of this rule, people with special needs cannot build savings from money they receive from gifts, inheritance or earnings and thus live with very little money if they want to receive government aid.
A special needs trust is usually part of the solution for a special needs family, however because it is controlled by a trustee, not the special needs person, a trust is not always enough. An ABLE account gives people with special needs an opportunity to manage a modest bank account without penalty against their eligibility for SSI, ALTCS or other government benefits. The ABLE account allows the person to accept distributions tax-free when used for certain expenses known as qualified disability benefits.
Here is a list of the type of benefits that are considered qualified disability expenses:
- Prevention and Wellness
- Employment training and support
- Assistive technology and personal support services
In 2016, the IRS annual limit on deposits to an ABLE account was $14,000. The beneficiary can remain qualified for government benefits as long as the ABLE account does not exceed $100,000. Medicaid may file a claim for repayment from beneficiary’s estate when the beneficiary dies after any outstanding qualified expenses such as funeral and burial costs are paid.
Although Arizona does not yet have ABLE accounts, you can look into opening an ABLE account in another state.
Caring for Your Special Needs Child Into the Future
Life can be challenging for parents of a special needs child. Maintaining the resources to help advance the quality of life for a developmentally delayed or disabled child requires careful planning and structuring. I can help you today.