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The Plain English Attorney

By Grace Kim, Intern

A big concern facing many parents and caregivers of special needs children is the desire to provide beyond just basic needs; all while protecting the benefits their children deserve and need. This is where estate planning and preparation comes in. Although a Special Needs Trust can provide your child extra support, it is not always necessary in addition to a revocable living trust. So when should you set up a separate Special Needs Trust? There are really only two situations in which a Special Needs Trust is beneficial.

1. There are other people who want to leave money for your Special Needs Child

Often times a third party such as a grandparent may wish to contribute to the care of a special needs child. As well intended as it may be, simply leaving money directly may have many unintended consequences. Receiving too high of a monetary contribution may prevent a special needs child and their parents from obtaining government assistance and benefits. Although this may not be a problem considering the extra support, what would happen if that money runs out? The child and parents are then faced with the frustrating task of attempting to gain benefits all over again.

This is when a special needs trust is needed. By establishing a special needs trust separate from a revocable living trust, third parties like grandparents are able to contribute money directly into the trust, rather than to the individual. By doing so, parents and loved ones can provide for more than just the basic needs, while protecting much needed benefits and assistance. This way, a special needs child is able to claim any rightful inheritance while receiving the assistance they deserve.

2. Estate Tax Sheltering Tool

There are federal limits in place when it comes to the taxation of estates. A great way to avoid an estate tax while providing for your special needs child is to establish special needs trust funded by a life insurance policy. A life insurance policy is one of the easiest things to move around when planning your estate. A way to use a special needs trust as an estate tax sheltering tool is to establish a separate special needs trust as the beneficiary of a life insurance policy. This way, the money stemming from a policy is pooled into the SN trust, and there is no estate tax on the life insurance money. By doing so, the needs of the special needs child are still met while maintaining tax-free.

Outside of these two scenarios, a well-planned revocable living trust is a great way to protect your assets while providing for your special needs child. A revocable living trust can be set up to provide for a special needs child through the trust, taking away the need to set up a separate trust.

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