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Disabled children benefit from special needs trusts, P.1

A recent Wall Street Journal article drew attention to the usefulness of special needs trusts for parents with disabled children. Because disabled children often have diminished earning power or cannot manage their own affair, they present unique challenges for parents and caregivers.

Special needs trusts come in handy in several different areas when planning for disabled children. Not only can special needs trusts be a tool for leaving funds for a disabled child, they can also be a vehicle for seeing to housing and long-term care for that child. And most importantly, special needs trusts can help ensure the disabled child will not be disqualified for government benefits down the road.

Parents and caregivers sometimes choose to leave the disabled child's inheritance in the care of another child and allow them to administer it as needed. The child selected for the task is often the one who lives closest to the disabled child. While this is a valid approach, it can be problematic when the child begins to second guess whether they want to continue taking that task on. If the caretaking child gets a divorce, there are other issues that come into play.

Special needs trusts allow parents and caretakers of disabled children to provide funds for their child and have those funds administered by a trust officer who has formal legal duties regarding the use of those funds. The biggest benefit is that the disabled child will have funds at hand, but is not the legal owner of those funds, so they will not be counted against him or her with regard to qualifying for government benefits.

In our next post, we'll continue with this topic.

Source: Wall Street Journal, "Taking Care of Disabled Heirs," Sep 3, 2011.

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