If you have a child with special needs, you may want to make sure he or she is provided for after you are gone. However, it can be a little complicated to estate plan with this goal in mind.

Traditional estate planning tools, like wills and living trusts, can be useful when leaving money to typical adult children. Unfortunately, traditional estate planning tools may not work as well when leaving money to a child with special needs because inheriting outright could inadvertently disqualify your child from receiving other types of financial assistance.

Will your child receive governmental benefits?

If there is a good chance your child will receive governmental benefits, it may be beneficial to set up a special needs trust. If your child inherits outright, it is possible that the assets could disqualify him or her from certain government benefits that have an income or asset limit.

Without the help of government benefits, your child’s inheritance may not last as long as you intended it to last. When the inheritance is gone, your child may qualify again to receive government benefits, but may not enjoy the standard of living that you intended to provide for him or her.

With a carefully crafted special needs trust, your child will remain eligible for the governmental benefits. These benefits can provide for your child’s basic needs, while the trust can provide extra comforts.

Where will the assets come from?

There are two kinds of special needs trusts. The one that is most appropriate for your situation will depend on who owns the money before it enters the trust. You can use a first party-special needs trust if your child already owns the money that will go into the trust. This may be the case if your child has received a court settlement or has already inherited money or property outright.

While this situation is possible, the more likely scenario is that you want to leave some of your own money or property to your child. In this situation, you can use a third-party special needs trust.

How does a special needs trust work?

Once you create a special needs trust, you can fund it right away or it can be funded upon your death. A trustee of your choice will manage the assets on your child’s behalf. The trustee may use the money in the trust to pay for the extras your child may need.

The trustee may use the funds to pay for a variety of goods and services, including:

  • Entertainment
  • Furniture
  • Pet-related costs
  • Vacations
  • Medical care
  • Transportation
  • Personal care attendants
  • Education

Because your child does not control the money, it does not count against your child’s eligibility for governmental benefits. Also, if something happens and someone sues your child, the trust will protect the assets from judgement.

A special needs trust may not be the best estate planning tool for all situations. However, it can be an effective way for a parent to help a child with special needs continue to afford a comfortable quality of life.