Mistakes to Avoid When Drafting a Special Needs Trust

A special needs trust is essential for protecting a loved ones quality of life and access to government benefits.

A special needs trust is essential for protecting a loved ones quality of life and access to government benefits.

When drafting a special needs trust for your disabled child or other special needs family member, you want to make sure that there are no mistakes that could jeopardize their financial future and care.

But too often, mistakes are made and can go undetected until it is too late. When creating special needs trusts in Doylestown, beware of these common mistakes.

Beneficiary Designation Errors

Make sure that all the beneficiary designations on your work retirement plans, life insurance policies and IRAs are made out to the special needs trust, instead of the child. This ensures proper funding of the trust.

Funding with Term Life Insurance Policies

Term life insurance is an affordable way to ensure coverage for the short-term. However, for funding a special needs trust, it’s not good practice because a more permanent type of insurance is more cost-effective during the parents’ lifetimes. This is because it’s likely that the special needs child will outlive his or her parents.

Drafted into Joint Parents’ Estate Plan

It’s often easier to draft a special needs trust into your and your spouse’s estate plan, but this can cause problems because it ties up funds that may be needed until the surviving spouse passes away. Creating a separate special needs trust makes funds available immediately upon the death of a parent.

529 Plan and Custodial Account Issues

Any money that is left is a custodial account beyond the amount of $2,000 can make your special needs child ineligible for Medicaid assistance once they reach legal age. Unused money in a 529 Plan counts as assets for your child once they reach 18 and do not continue their education past high school. This too could disqualify your child’s ability to receive public benefits.

Executor/Trustee/Guardian Issues

When choosing your executor and trustee, don’t assume that they’ll be the best person to be your special needs child’s guardian. Take care in deciding which family member would be the best caregiver, and if you have no such member, name an agency that specializes in providing the care that your child will need.

Forgetting to Notify Family Members of the Trust

Family members should be aware of the trust that has been created, not just for their own peace of mind, but to protect your child financially. If financial gifts or inheritances are given directly to your child after your death, those gifts could affect their eligibility for government benefits. Notifying your extended family members of the trust’s existence will allow them to make the gift to the trust instead.

Absence of Letter of Intent

While a letter of intent is not a legal document, it’s considered an important part of special needs trusts in Doylestown. This letter leaves information about the care of your special needs child provides the best opportunity that their quality of life will be maintained.

Information in this letter should include, but is not limited to their:

  • Likes and dislikes
  • Normal routines
  • Names of friends
  • Doctors and specialists
  • Medications

Assistance with Special Needs Trusts in Doylestown

A special needs trust is an essential estate planning tool, and like all important financial matters, it’s something that is best left to an expert instead of trying to do by yourself. For assistance with special needs trusts in Doylestown, contact the attorneys at Newman Elder Law.

Our legal team has years of experience assisting our clients with guarding their assets. After working with us, you’ll have a special needs trust that will allow you to rest easy that your loved ones will be looked after long after you’re gone.

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