Estate Planning for Gifts by Parents to Special Needs Children

Trusts are
good vehicles to hold gifts by parents to their children who have disabilities
and who have qualified for programs and benefits based on indigency.  The Trust can allow a third person to be
Trustee after the parents’ death and to give that person discretion in making
distributions for the benefit of the child. 
The Trust can go on for the entire life of the special needs child.

If the child
acquires assets, he or she may be thrown off the program he or she previously
qualified for.  In some cases, the
government entity which previously paid benefits may have a lien to recover the
value of those benefits.  That lien could
attach to the assets that the child inherits at the death of his or her

A Special
Needs Trust is one which contains provisions designed to avoid these problems
and to prevent the trust assets from being treated as a resource of the
child.  Central to accomplishing this
result is a provision stating that the Trust cannot be used to pay any benefits
that the child would otherwise qualify to receive from any government
program.  In other words, the Trust can
only be used for things above and beyond the benefits which the special needs
child already qualifies for.

It is
critical that the child not be Trustee of his or her Trust, that the trust be
irrevocable, and that Trust benefits be paid out for the benefit of the child
and not directly to him or her. Since the Trust will go on for the child’s
entire life, it should designate a succession of many Trustees and should even have
a procedure for naming additional Trustee should the child outlive all of the

Some parents
like to create a Trust for the child while they are living and to transfer
assets to it.  This author is not high on
this strategy because the parents, while they are living, can use their own
funds for the child and because the parents can include a provision in their
revocable trust that says when both parents die the assets for the special needs
child can be allocated to a newly created Special Needs Trust. 

This article
does not speak to Special Needs Trusts that are created to house the proceeds
of personal injury settlements or awards which are transferred by the child to
his or her Special Needs Trust.


is a Beverly Hills attorney who is a certified specialist in
Taxation and in Estate Planning, Probate and Trust Law. He holds a Masters
Degree in Taxation from Golden Gate University and has taught tax and estate
planning courses at UCLA and USC.  He has been named as Super Lawyer by
Los Angeles Magazine.

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profile on  


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