Create A Supplemental Needs Trust To Help Your Disabled Adult Child When You Die

If you're caring for an adult child who is permanently disabled, you may worry about how well he'll be cared for after you're gone. He or she may be mentally, physically, or emotionally disabled and able to qualify for Medicaid. But you may want to help him with your money for those 'extra needs and care' that can make a big difference in his life. Here's what to do...

Since Medicaid and Supplemental Security Income (SSI) are based on financial need, its beneficiaries can't have much money in their own name or else they'll lose their benefits. So any money you leave to him can throw him off Medicaid's help until that money's used up since Medicaid 'counts' it as a resource for his help. In fact any money he's guaranteed or has discretionary access to will likewise 'count'. So what can you do to help him while keeping all his benefits intact?

*Create a 'Supplemental Special Needs Trust':

Provide those 'extra needs and care' for him without jeopardizing or contributing to Medicaid's assistance by setting up a Supplemental Special Needs Trust (SSNT). The essential feature of this trust is that its assets will not 'count' as resources of the disabled beneficiary under the qualifying needs tests applied by Medicaid or SSI.

The SSNT is designed not to undermine the qualifying needs of its beneficiary - your child- to receive Medicaid or SSI. It's drawn up so it doesn't represent an asset owned or controlled by your child. So, be sure to use a qualified lawyer so that the trust will be drawn up and administered in strict compliance with federal and state laws.

The trust should make clear that the trustee is directed only to make distributions for the "supplemental" or "special" needs of the beneficiary or as long as the distributions do not disqualify the beneficiary from governmental benefits. In fact, the trustee should be specifically prohibited from making distributions which provide the beneficiary with food or shelter which are the two disqualifying categories under SSI and Medicaid regulations.

You can choose yourself (while you're living), another child or a corporate trustee to manage the trust's funds and make disbursements to provide things that Medicaid doesn't cover - like better dental care, books, a pet, clothing, a haircut, music lessons or an afternoon at the movies. The trustee could also hire an individual case manager, a therapist or a friendly companion to re-create some of the human contact and support family members provided when they were able. Choose a trustee who'll show the compassion toward your child that you would.

*How to fund your Supplemental Special Needs Trust:

First, determine the amount of funding your SSNT will need. If you can arrange to fund it with assets you have, that's fine. You may want to supplement that in part or wholly by proceeds from a life insurance policy.

You can choose between term or permanent life insurance. Whole life can be an effective option since its policies have premiums that never rise and they build up cash value.

Policies with a cash value allow parents or guardians to borrow from these savings in an emergency. They may use it to purchase a needed piece of equipment or specialized therapies for the child.

Again, be sure to use a lawyer to draw up the trust provisions. It's best to have the trust set up as a revocable trust to protect any assets you intend to use for the supplemental needs trust. As a trust it'll bypass the delay that probate can produce so it can start helping your child right after you die.