If your child or loved one lives with a severe chronic illness, developmental disorder, or other disabling health issues, a supplemental trust can act as a powerful mechanism to protect financial assets that may support their lifestyle needs.
Supplemental trusts work by allowing a designated trustee to use funds for the needs of a disabled person while allowing them to remain eligible for government benefits.
While this type of trust is often useful in the case of parents caring for a disabled child, a supplemental trust can be created for anyone with a disability.
Parents of disabled children who are divorcing often use a supplemental trust as a way for each party to contribute to their future needs.
Who needs a supplemental trust?
Also called a special needs trust, the system of supplemental trusts was enacted by federal law to work as a financial safety net for those living with serious physical, intellectual or mental impairments.
These chronically disabled individuals do not have the ability to maintain gainful employment and earn money to pay for basic necessities, let alone the costs of their health care. In addition to medical care, disabled people often require home nursing, medical equipment, home modifications, vehicle modifications, and much more to ensure their quality of life.
As a result, many apply for government benefits such as Medicaid, Social Security Disability Insurance, and Supplemental Security Income. These government benefits require the applicant to prove their income and assets, which is used to determine their eligibility.
Supplemental trusts allow people with disabilities to set aside funds to use for often crucial additional expenses that aren’t covered by government benefits while remaining eligible for those income-based benefits.
Assets are placed in a supplemental trust, allowing them to be used for specific purposes and not classified as income or property of the disabled person..
Sometimes in these situations, people are in possession of funds from a will, a legal settlement, or another source that can be used to improve their lifestyle. Supplemental trusts provide a mechanism for using the money while maintaining eligibility for government benefits.
How does a supplemental trust work?
A supplemental trust is a legal document that is drafted and approved by the court. The trust document explains a number of items, including how the trust should benefit the beneficiary, the trustee’s scope of authority, and the timing and terms of the trust’s termination.
The trustee can make withdrawals from the trust account to use for the beneficiary’s needs as described in the trust document. They are responsible for tracking their withdrawals and transactions, to prove that they are managing the trust according to its legal stipulations.
It’s important to note that once assets are transferred into a trust, they become the property of the trust. The assets no longer belong to the disabled person or any other party.
The trust becomes its own entity, similar to how a corporation operates. Assets now belong to the trust, and the trust terms govern how they can be distributed.
Supplemental trusts for children in divorce
In cases of divorce, a judge may decree that both parents of a disabled child contribute to a supplemental trust to support that child’s needs into the future. Though the parents may now care for the child separately in some ways, both remain responsible for their education, health, and relative comfort.
To create a supplemental trust for a disabled child whose parents are divorcing, a family court judge will consider a number of factors to decide what each party is able to contribute. Even in the case of an adult child who is no longer a minor, a divorce decree can include a requirement for their parents to contribute to a supplemental trust.
Similar to calculating child support, a family court judge will consider many factors to determine how much each parent must contribute to a supplemental trust. The judge will weigh the parents’ financial resources including their salary, retirement benefits and other sources of income.
The judge will also take into account the type of lifestyle the child had up until that point, and what their life would have been like had their parents not divorced. Also considered by the court is whether the child receives any local, state or federal government benefits, or gets income from any other source.
If you need assistance drafting a supplemental needs trust for your child or another loved one, contact Sterk Family Law Group. Our caring staff members will help you through this often difficult process and work for your loved one’s future comfort.
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