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How a special needs trust protects your child with a disability

When your child has special needs, you may need to take steps during estate planning to help ensure your child has everything he or she needs to get by in your absence. Many individuals living with disabilities use certain forms of government help, such as Medicaid or Supplemental Security Income.

However, your child must undergo means-testing to qualify for these benefits. If you die and leave your child assets in a traditional will, it may hurt his or her eligibility for government benefits moving forward.

How the special needs trust helps

Many parents of children with disabilities make efforts to help their kids retain access to government benefits by creating special needs trusts. When you place assets into a special needs trust, they do not undergo consideration during means-testing. In other words, this estate planning tool allows you to leave money behind for your child with a disability without making him ineligible for government benefits.

Types of special needs trusts

There are two main types of special needs trusts: the first-party trust and a third-party trust. First-party trusts might include federal or state provisions or other assets to which your child has legal entitlement.

A third-party trust contains assets from someone other than your child with a disability. A third-party trustee oversees the assets entered inside. Once the beneficiary named in the trust dies, the trustee may decide what happens to anything that remains in the trust.

Both first-party and third-party special needs trusts offer certain benefits. The type that may better suit your needs may depend on the specifics of your situation.