Trusts come in many flavors, with specialty uses to fit unique situations. A “special needs trust” or a “discretionary” trust is just one flavor. A special needs trust is designed to protect a beneficiary who is, or may become, institutionalized. Having a child or grandchild who is unable to care for themselves is not a happy situation, but it is unfortunately a common situation that must be dealt with.
Let’s supposed you have a child with developmental disabilities. You will care for that child as long as you live, but none of us lives forever. Then what? You may expect another child to step into the breach and provide in-home care, but that may not always be a possibility. Even if it is a possibility now, things change. Institutional care is something that should be planned for in this situation.
What if you have a grandchild who abuses drugs? There is a likelihood that such a beneficiary will be incarcerated, if the addiction is not brought under control. At a minimum, such a beneficiary is likely to spend a lot of time in drug rehabilitation facilities. Institutional care is something to plan for in this situation, as well.
We can include a discretionary, special needs trust for your child in your Last Will and Testament, if you are likely to be the only individual contributing funds to the trust. If you believe that your sister, who has no children of her own, would like to name your disabled/addicted child as her beneficiary as well, then we should set the trust up as a stand-alone trust, so that multiple contributors can put asset into the trust.
The terms of the trust will say that the trustee, whom you will choose, should hold the funds of the trust for your child’s benefit. The trustee will be instructed to make distributions to your child in the trustee’s discretion (hence the name) to supplement whatever care the child is already receiving, not to take the place of the already-provided institutional care. That way, your child will qualify for whatever public benefits are available, and the assets you have left for your child can be used to provide the nicer things in life, that public funds won’t provide. And, if the trust is properly drafted, none of your child’s creditors can reach the funds in this type of trust.
Having a beneficiary who is likely to need institutional care is not a happy situation to contemplate, but it is one of life’s challenges that each of us may confront. A discretionary special needs trust can make the difference between a happy life for such a child, with his/her material needsand wants satisfied, or one where only your child’s needs—as determined by the state—will be met. Let us help you with planning for such a situation.