When you are the Arizona parent of a son or daughter with a disability, you may need to take extra steps during estate planning to look out for his or her interests. For many parents of children who have special needs, figuring out how to leave a legacy behind without impacting government benefit eligibility is a key part of the estate planning process.
According to the Special Needs Alliance, a special needs trust is a common estate planning tool used by parents of children with disabilities.
How special needs trusts work
There are two main types of special needs trusts: the first-party special needs trust and the third-party special needs trust. The main differences between the two types involve how to fund them and what happens to the funds inside when the beneficiary dies. However, most people looking to protect government assistance eligibility do so through a third-party special needs trust.
Why special needs trusts protect public benefit eligibility
Once you enter assets into such a trust, they become the legal property of a trustee, rather than your child with a disability. Thus, they do not come into play during means-testing for Medicaid or Supplemental Security Income. They also do not impact your child’s ability to participate in the Arizona Long-Term Care System, which factors in once your child with a disability reaches a certain age.
Drafting a special needs trust may prove complex. There may also be tax implications associated with doing so. It is important that whoever drafts your special needs trust does everything right if you wish to use it to protect your child’s public benefits eligibility.