A standard Living Trust or Family Trust is useful to manage a child’s inheritance until that child is old enough and mature enough to receive the inheritance, even if that is to be later in life.
But what happens when the heir has physical or mental disabilities that entitle him to receive state or federal assistance? In that case, the use of standard Family Trust provisions may enable the government to trim or even eliminate the benefits that would otherwise be provided for that heir.
To avoid this cutback, many parents in Idaho choose to use a Special Needs Trust for that child. Or where there are other children who will not be receiving government benefits that need to be protected, the parents can simply use targeted Special Needs provisions for those parts of their standard Family Trust that apply to the special needs child. Doing so will allow assets to be available to supplement the governmental benefits in terms of taking care of the needs of that child. In other words, the funds from the trust becomes a supplement to the government benefits to ensure that the financial needs of the child are taken care of. And it does so without enabling the government to cut back on the benefits provided to or for that child.
So how does a Special Needs Trust differ from a standard Family Trust? Really there is just one difference: The trustee of the trust is given absolute and ongoing discretionary authority to decide whether or not to actually use trust assets to take care of the needs of the disabled child.
The Family Trust set up by the parents will make it clear that the trust is established to provide for the support, care, maintenance, and education of the child. But then the successor trustee will expressly be given absolute discretion to decide which of the needs of the child will be paid for out of the trust.
A carefully chosen trustee will, of course, follow the instructions of the parents and actually use the trust assets to take care of the child as he or she grows up, even into adulthood. But the mere existence of the trustee’s discretion will ensure that the child’s government benefits will not be trimmed due to the existence of the trust. The trust effectively becomes a supplemental source from which the parents can maximize the resources available for the enhancement of the care of their special needs child.
Typically, when the child with such needs passes away, any assets remaining in the Special Needs Trust will then be distributed to other heirs designated by the parents when they set up the trust. That can include surviving siblings of the deceased child, charities, or other family members or friends.
One caution is in order: The use of a simplified Special Needs Trust described above will not work if the disabled beneficiary already owns or is entitled to receive the assets that will be placed into that trust. For example, if a disabled child is to receive a cash settlement arising from an automobile accident which caused that child’s disability, then a significantly more complex Special Needs Trust is required due to federal and state statutes. Similarly, if a disabled child has already inherited property from a deceased parent who neglected to establish a Special Needs Trust for that child, state (Idaho Code sec. 68-1405) and federal law will require a more complex solution in order to preserve government benefits to which that child may otherwise be entitled. But for a more typical situation in which the parents are the owners of the property that will be placed into the trust, relatively simple provisions can serve to keep that gift from resulting in the cancellation of the child’s government benefits.
But where the funds originated with the parents who are still living, a special needs trust for a disabled child may be established without great difficulty.