Children born with preventable health issues due to medical malpractice, or children who have sustained injuries related to accidents resulting in long-term disability, often receive financial settlements. The purpose is to compensate them for future living and care expenses.
Assuming you are fortunate enough to receive a settlement, in many cases it will not be sufficient to provide for your child’s life-long needs. It’s a heart-wrenching scenario with a very practical concern: How will you best manage your child’s settlement?
First, it should be managed to support both immediate and long-term care needs. Second, it must be structured in such a way that it will not disqualify your child from government aid when needed. Many government resources exist both within our state and federally for the very purpose of helping disabled children and adults. This can include, but not be limited to, Supplemental Security Income (SSI), Medicaid and vocational rehabilitation programs. Other benefits may also apply, such as food stamps and Section 8 housing assistance.
Unfortunately, it does not take much of a settlement award to be ineligible for important entitlement benefits. In fact, as little as $2000 could cost your vulnerable loved one access to benefits at a critical time. Losing access to health-related benefits, for example, could be disastrous for someone with complex medical problems.
A lump sum settlement payment, or structured settlement which functions like an annuity, and is payable to your child would typically make him or her ineligible for public support. A special needs trust, would not. Settlements paid into a special needs trust can allow designated trustees to access needed funds while shielding your child from low government eligibility thresholds.
This is because a trustee, which could be a parent or guardian, has total control over the management of the settlement proceeds even though it belongs to your disabled child or adult child. Your disabled loved one becomes the trust beneficiary. As such, he or she has limited access to these funds. It is these limitations that create a shield through which there is still allowed access to benefits.
When the special needs trust is structured appropriately, government program administrators such as those administering SSI benefits must look past assets placed within the trust. It is generally understood that the beneficiaries of these trusts have special circumstances that place them at a disadvantage and need the extra care and support that access to public benefits would provide.
Even if you are not interested in government benefits, it is advisable to still consider a special needs trust. These trusts allow for the specific needs of disabled individuals to be addressed, as opposed to other types of trusts and financial arrangements. These trusts plan for the long-term as there may be some point in the future some form of government assistance may be desirable. If you have questions on whether it is time to start creating a special needs trust, or revise your existing documents, do not hesitate to let us know.