One concern you need to have with leaving your child an inheritance is the effect it may have on his or her ability to receive federal benefits. Some options may reduce his or her benefits or make your child unable to receive any benefits, which creates more problems because you then have to find a way to fund the rest of his or her life through your estate plan. It is best to plan from the beginning with federal benefit guidelines in mind.
According to Forbes, a special needs trust is one option that should avoid issues with federal benefit qualification. A trust has one distinct characteristic that makes it immune from the government using it as a way to deny federal benefits.
The beneficiary
When you make your child a beneficiary on any account, it increases his or her income. Income is a major factor in qualifying for certain federal benefits, such as Supplemental Social Security Income and Medicaid. If you make your child a beneficiary, then the money or assets in the account become his or her property and count against the income limits for such programs.
A trust beneficiary
With a trust, your child is not the beneficiary. The trustee manages the trust and controls it. Your child has no control, which means this trust does not count against him or her as income or assets when it comes to applying for federal benefits.
This type of trust is something you can use as a standalone source to prepare for your child’s future, or you can combine it with other options that will also bypass the benefit restrictions. Some additional options include long-term health insurance and 529 ABLE accounts.
