Taking care of a child with special needs

The care and attention that loved ones give to a child with special needs does not end when they grow up. Fortunately, there are government programs that can give basic support to such individuals for food, clothing and shelter. But the assistance may not provide everything they will need.

Focusing on the future needs of a family member with special needs may mean providing for them with a special type of trust. The challenge will be to make sure this source does not later disqualify their child from receiving available public funding.

Social Security programs for special needs individuals

Social Security Income (SSI) is a federal program funded by general tax revenues to provide monthly assistance to those special needs individuals who qualify. The amount for an eligible recipient depends on where the individual resides, as some states also fund the program. North Carolina, for example, provides supplemental income to SSI recipients who are in group or family care homes.

The eligibility requirements, however, are quite strict. Individuals must be disabled or blind and must have resources of less than $2,000. Any supplemental income sources will reduce the benefit or disqualify the special needs individual from receiving assistance. Loved ones who wish to provide direct financial aid through gifts or legacies will jeopardize their loved one’s future eligibility.

The advantages of a special needs trust

A special needs trust, or SNT, like most trusts, is funded by gifts, real estate or other assets that a third party, called a trustee, manages. In this case, the trustee manages the trust on behalf of a child with special needs.

An SNT ensures that assets are used as intended, following not only trust documents but also SSA and IRS guidelines. Since the trustee controls the allocation of assets and not the beneficiary, the trust assets that will provide supplemental support do not trigger governmental eligibility restrictions.

Grandparents and other family members may fund the SNT in many ways, such as with life insurance policies, IRA’s, or with annual gifts of up to $15,000, or $30,000 for a couple. The funds in an SNT with liquid assets are like a checking account, accessible to cover expenses of the special needs person. In addition, an award for damages from a personal injury settlement can directly fund the SNT.

These and other funding sources can be a regular source of income that will provide for nonessential expenses without jeopardizing the recipient’s SSI status. For the families, not only will this guarantee the future needs of their loved one, but will allow them to explore options for minimizing the tax implications of giving.