Every year, about 6,000 babies with Down syndrome are born in the United States. Over their lifetimes, many of these children will contend with serious medical conditions including heart defects, gastrointestinal problems, visual or hearing impairment, dementia, and early-on set Alzheimer’s disease. As a result, the costs associated with Down syndrome can be astronomical and many of those with the condition receive public benefits, such as Medicaid or Supplemental Security Income (SSI).
All parents want their children to be happy and to enjoy long-term financial stability, and parents whose children have Down syndrome often believe the best way to accomplish this is to leave money to their children using a Will, a life insurance policy, or a retirement account. However, leaving money directly to the child can disqualify him or her from receiving much-needed benefits. For example, under SSI rules, a recipient is limited to $2,000 in assets. If a recipient has property valued more than this amount, his or her benefits are suspended until those assets are “spent down” below the $2,000 threshold.
This means that the unintended consequence of an inheritance or even a big gift from grandma could result in a loss of valuable benefits.
What is the best way to plan for long-term financial security for your child? One solution is to establish a Special Needs Trust.
Under the terms of a Special Needs Trust, a Trustee manages trust property to ensure that it will remain a long-term source of funds for the child. The Trustee has discretion to distribute trust assets to (or on behalf of) the child, as long as he or she follows strict rules that forbid the use of Special Needs Trusts for any of the services covered by government benefits. In a nutshell, Medicaid and SSI benefits continue to cover the basics, while trust assets can be used to provide a child with the “extras” that enhance quality of life.