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If Your Child’s Special Needs Trust and Related Estate Planning Is Not Done Properly, It Could Spell Disaster for Your Family


If you are a parent of a disabled child, setting up a special needs trust takes very careful planning and experience from the estate planning legal team setting it up for you. The attorney(s) that you work with should know about all of the various charitable nonprofit programs – as well as local federal and state programs and eligibility rules – that apply in case a parent or relative wants to leave gifts for the child, provide them with a share their estate, name the child as a beneficiary in their retirement plan or life insurance policy, and/or provide other kinds of support. Dropping the ball on any of these areas could place the future of the child and those who care for them in jeopardy, as we discuss below.

The Law

For example, one law that your trust planning attorney needs to be intimately familiar with is the Omnibus Reconciliation Act 1993, which establishes the rules that trusts must follow, including how a special needs trust can qualify for an exemption so that it does not have to be declared as income. For example, the trust qualifies if it:

  • Is limited to one lifetime beneficiary;
  • Irrevocable; and
  • Only pays for dental and medical care that is not covered by other sources. This includes rehabilitation and other needs, such as education and transportation.

Where Things Can Go Wrong

Take for example a disabled child who has Medicaid coverage because they require constant care, and this prevents their parent(s) from working, and the parent(s)  also does not receive enough child-support to cover living expenses. If the child becomes a beneficiary of another parent or relative’s retirement plan, for example, and this is not set up in a specific way, any funds left to that child count as income, and that could interfere with other benefits that they receive. In addition, if the family receives any public benefits, unless an attorney provides family planning services and advice, they be subject to Medicaid reimbursement to repay certain benefits.

In addition, there can be other challenges to the family: given that the funds in a special needs trust can be used to pay the child’s costs, they cannot be made available for living expenses for the family. Therefore, any attorney helping the family with the trust and estate planning should come up with a strategy to place any estate funds left to the child into a new special needs trust for the child that will not be subject to federal reimbursement rules. Ideally, they should also set up a qualified income trust and a rollover IRA so that any retirement funds left to the child won’t affect other benefit programs that they are a part of, such as SSI.

In terms of assistance with living expenses, an attorney who has worked on special needs trusts can help provide advice on a number of public assistance programs, such as the Supplemental Nutrition Assistance Program and Temporary Assistance for Needy Families, which can provide food vouchers. Although there have been a number of changes to these particular programs during the current administration that can interfere with families gaining access to what they need, distributions from the special needs trust should not affect eligibility for the programs.

Still, this is typically not enough to support a family, therefore, it is possible for an attorney to work with the family to seek a reformation of the child trust to a discretionary trust so that funds can be used for living expenses, such as housing.

Contact Our Florida Estate Planning Attorneys

Our Orlando estate planning attorneys are here to provide you with the guidance and advice you need to make sure that your estate planning is done right based on your particular circumstances—contact us at Gierach and Gierach, P.A. today to find out more.





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