Parenting a special needs child often means caring for them throughout their adult lives and into your retirement. It is common for parents to worry what will happen to their child with autism, Down syndrome or other serious disabilities. Thankfully, special needs trusts create an opportunity for families to plan financially for the needs of a special needs adult child.

This is particularly important for families whose special needs adult child requires residential care. These facilities can cost thousands of dollars a month, and many insurance programs, including Medicare, do not cover their cost. If you do not have adequate assets to cover all of the expenses of your adult child’s cost-of-living after you die, you may worry about what will happen to their inheritance and standard of care.

Especially if they require assistance from government programs, such as Medicaid, what assets you leave behind could end up seized by the government to repay certain benefits or taken by the residential care facility to cover expenses. With proper planning, you can avoid this issue and protect your legacy for your special needs child.

Medicaid will penalize income and assets over a certain limit

In order for your disabled child to receive Medicaid benefits, there is a strict government limit to their income. If your child does not work a job, they are unlikely, on their own, to surpass that income limit. However, any inheritance from you received in the lump sum could preclude them from receiving Medicaid benefits for some time.

Medicaid has a 60-month look back period, meaning any transferred assets or inheritance received within five years before applying could be cause for a financial penalty. That rule can also impact inheritances received by someone already utilizing Medicaid benefits.

You, as the parent caring for your child, need to take steps to ensure that any assets your child inherits will not impact their Medicaid eligibility. After all, Medicaid may be the only way to pay for a residential living facility. Without that protection, your child’s living situation could be endangered.

Trust assets are safer for those who rely on Medicaid for residential care

Tax protections are one of the biggest benefits associated with the creation of a trust, but that’s not the only reason people create them. When it comes to an adult special needs child, you may be less worried about the potential tax implications than you are for your child to spend that money quickly or for the inheritance to impact their care and independence negatively.

A trust allows you to place constraints on when your child can access the money you leave behind and how much they can use at any given time. Careful planning while creating your special needs trust can help ensure that the funds in the trust benefit your child without placing them at risk of losing government benefits that pay for their residential facility.