Divorce, Child Support, and Special Needs Trusts

 

Divorce proceedings that involve a child with special needs bring a layer of complexity to current and future financial planning due to the increased likelihood that the child will require care and financial assistance for his/her entire life.  A child with special needs who will be unable to engage in substantial employment as an adult will most likely apply for Social Security and Medical Assistance benefits upon attaining the age of 18. Careful financial planning during the divorce process is necessary to ensure that any future payments of child support or monetary payments do not disqualify or otherwise effect the child’s receipt of, or eligibility for, such crucial public benefits.  It is easy to overlook the future effects of a child support order when the child with special needs is years away from attaining the age of majority.

 

Two different types of Special Needs Trusts should be considered when parents of a child with special needs decide to divorce.  A Special Needs Trust (SNT), in general, allows an individual who receives resource-based public benefits (SSI and/or Medical Assistance) to place monies in a SNT and continue receiving SSI and Medical Assistance.  A Self-Funded, or First Party, SNT is funded with monies of the beneficiary and has a payback to the state Medicaid agency upon the termination of the Trust.  By contrast, a Third-Party Funded Special Needs Trust, also known as a Supplemental Needs Trust, is funded with monies of anyone other than the beneficiary and does not have a payback to the state upon termination.  Both SNTs allow the child with special needs to use the Trust funds to pay for items and services not otherwise provided for by public benefits, such as transportation, clothing, entertainment, and unreimbursed medical expenses.

 

Both types of Special Needs Trusts assist with financial planning in divorce cases.  Child support paid directly to a Self-Funded SNT by a court order is not counted as income to the child for benefits purposes.  Similarly, a Third-Party Funded SNT can be named as the beneficiary of a life insurance policy that may be required under a property settlement agreement.  Divorcing couples should also revise their Wills, and a Third-Party Funded SNT should be named in the Will to hold any inheritance monies passing to the child with special needs.  It is critical that both monthly income payments such as child support and lump sum payments such as inheritances be directed to the appropriate SNT to avoid disqualification of benefits.

 

McAndrews Law Offices is available to consult with family law attorneys and their clients to provide information on public benefit eligibility and determine whether a Special Needs Trust can be useful in their case.