Planning for a child with special needs requires more than just making sure that you leave some money for them. Many times, children (including adult children) are receiving Medicaid or other government benefits due to their disability. This is true even if they have private health insurance as well, since private health insurance doesn’t cover everything.
A Special Needs Trust, also called a Supplemental Needs Trust, can be a good tool in planning for your disabled child, as discussed in this recent New York Times Article. (You may need to register to read it, but registration is free.) A special needs trust will allow your disabled child to continue to receive the necessary benefits under Medicaid or Social Security, while having money set aside to pay for those items and services that are necessary, but not otherwise covered.
In general, the funds in a Special Needs Trust cannot be used to pay for food or shelter, since that is what Social Security Disability Insurance pays for, but they can be used to pay for things such as travel, clothing, classes, transportation, hobbies, vacations, haircuts, TV’s, DVD’s, etc. In addition, because the funds are from a third party, meaning they did not belong to the beneficiary, the Trust does not compromise the beneficiary’s government benefits.
It is not just wealthy families who set up Special Needs Trusts. A Special Needs Trust can be funded with bequests from the parent’s (0r even grandparent’s) Wills, and life insurance policies. You can look out for your child while you are alive, and a Special Needs Trusts can help you provide for your child after you are gone.