Special Needs Frequently Asked Questions

Estate Planning Practice Group

Estate Planning Practice Group

What are the different types of Special Needs Trusts?

There are three different types of Special Needs Trusts. The first two are known as Third-Party Grantor Trusts. A Grantor is the person who initially sets up the trust. These trusts are structured to benefit a person with special needs, but are set up by another party and funded with monies that are not in the name of the person with special needs. A Third-Party Grantor Trust can be set up in two different ways.

The first type of special needs trust is more commonly set up by parents of the child with special needs. In this trust, the funds are initially controlled by the Grantor. Upon the Grantor’s death, the funds are utilized for the benefit of the person with special needs. Even then, the trust must be carefully worded in order to restrict distributions that might disqualify the beneficiary from government programs.

The second type of trust is more commonly set up by grandparents, but can also be set up by parents who wish to have something in place for family members to gift money or stock to their child. This type of Third-Party Grantor Trust establishes a present trust for the benefit of the person with special needs. A present trust is one that is currently funded and available for the use of the family member with special needs. The trust must be irrevocable and cannot be funded with any property belonging to the beneficiary. These trusts are often utilized by grandparents who wish to start gifting to their grandchild, but do not want to disqualify the grandchild from government programs.

The third type of trust occurs when a person with special needs receives funds in his or her own name. This may occur with proceeds of a lawsuit or an inheritance. In this case, the recipient must comply with numerous laws. One of the most frustrating provisions for this type of trust is that the state is the beneficiary of any proceeds still available upon the death of the person with special needs. After the state has been completely reimbursed for the services provided, the remaining amounts are distributed to family members after payments to other creditors.

For each of these trusts, the person setting them up needs to speak with a qualified attorney who is not only familiar with special needs trusts, but can also explain the intricate tax consequences of each trust option.

What is the difference between guardianship & conservatorship?

In Missouri, a guardian handles all medical and personal care decisions. A conservator handles all money and property decisions. If a special needs child has any assets in his or her name, the court will require a conservatorship to be established.

When should I contact an attorney regarding guardianship for my child?

Children with special needs often require someone to be a legal guardian after they have turned 18. Without guardianship proceedings, these children are considered adults with full legal rights to make their own medical and financial decisions.

We recommend contacting an attorney about three months before your child turns 18. In order for your child to be declared in need of a guardian, a doctor needs to certify that he or she is incapable of making independent medical and financial decisions. There needs also to be a court hearing in order for you to be appointed as the legal guardian.

What should I tell family members that wish to leave my special needs child part of their inheritance?

Family members should contact an attorney familiar with Special Needs Trusts. If a family member leaves money outright to your child, the child could be disqualified from government programs. Family members may either set up an immediate Special Needs Trust if they wish to start gifting right away, or incorporate a Special Needs Trust in their estate planning documents if they wish to leave money to a special needs family member upon their death. You can also set up a present Trust for family members to leave money to a child with special needs.

What should I do with money that I receive in my child’s name?

Whether your child is a minor or an adult who is incapable of handling his or her finances, the court will require a conservatorship to be set up in order to handle any money that child receives. You should contact an attorney immediately if your child receives funds in his or her name. The one exception to this rule is social security. Social security funds can be paid to a representative payee and a conservatorship is not necessary if these are the only funds a person with special needs is receiving.

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