Special needs trusts are an important part of estate planning for parents of a child with special needs. They offer benefits unique to a child with special needs that carry on through his or her lifetime. However, there are different types of special needs trusts that are treated differently for tax purposes, determining benefits and involvement of Illinois courts. Understanding the pros and cons of each is imperative as you plan for your child’s future after you die.
Some trusts are established with the assets of the child with special needs. Called a self-settled special needs trust, this type of trust is most commonly the result of money that the child has received directly through an inheritance or a personal injury lawsuit. A self-settled trust may be established by the individual with special needs, the parents, grandparents, guardians or the courts. Only the child with special needs can be the beneficiary. Self-settled trusts must include a provision directing the trustee, if the trust contains any funds upon the death of the beneficiary, to pay back anything the state Medicaid program has paid for the beneficiary. Also, the rules governing permissible distributions for self-settled special needs trusts are generally more restrictive than third party special needs trust.
A third party special needs trust is usually established by the parents of a child with special needs who have assets that the child has no part of. A third party special needs trust is often used to hold an inheritance or a gift, yet still allow the child to qualify for government assistance. The assets in the trust are not given to the child, but rather, a trustee who can use their funds as needed for their benefit. There are no limits to how much money the trust holds.
Rubin Law is the only law firm in Illinois exclusively limited to providing compassionate special needs legal and future planning to guide our fellow Illinois families of children and adults with intellectual disabilities, developmental disabilities, or mental illness down the road to peace of mind. For more information, email us at email@rubinlaw.com or call 866-To-Rubin.
