Planning for a child with special needs can include advising caregivers of your wishes and preparing your estate for after you’re not around. As children with special needs grow to adulthood, it can become necessary to seek authorization to make financial and medical decisions on their behalf. And the financial impact can be considerable.
Supplemental Needs Trust: a trust vehicle for children with special needs
In the USA, the most-used instrument for estate planning for children with special needs is a Supplemental Needs Trust ("SNT"), which differs from other trust vehicles in that its primary purpose is to protect the child’s access to benefits in adulthood.
While in most cases trusts are intended to protect a family’s estate, SNTs are useful even if the bequest in question is relatively small. For instance, a bequest of just $2,001 could render an adult with special needs ineligible for both SSI disability payments and Medicaid. The loss of the monthly $733 from SSI might be affordable, but without Medicare, medical costs can spiral. However, the most typical SNT use case is when there’s a bequest including compensation payments as well as inheritance.
How do you set up an SNT?
SNTs are governed by complex rules in the United States. Creating a trust that’s compliant with these rules and also reflects the beneficiary’s sometimes-complex or evolving needs is a specialist task, which means it’s best done in partnership with a financial advisor. This is best done by a family member rather than by the beneficiary themselves; although there is regulatory provision for self-settled SNTs, they are much less advantageous: for example, they must contain a provision for repayment of Medicaid when the beneficiary passes.
Alternatives to an SNT
Trust set up in Hong Kong can be more open-ended than those established in other jurisdictions. They can operate in perpetuity, rather than for a fixed period; local heirship laws don’t apply, meaning full discretion for the settler; and trust vehicles can be crafted by finance professionals in an environment that combines professionalism and regulatory oversight with maximal leeway to create exactly the trust you need.
While there’s a specific trust vehicle in Hong Kong that’s designed for children with special needs, called the Special Needs Trust, it exists for social welfare reasons, applies only to Hong Kong residents and has the Hong Kong Director of Social Welfare as its trustee; it doesn’t impinge on your right to set up your own private trust in Hong Kong.
Considerations when setting up a trust for a child with special needs
Here are some things to think about when you’re discussing your trust with your financial advisor:
- Government benefits: Depending on your location, a person’s income or assets might be used as the criteria for eligibility for a range of benefits, including housing, income support and medical care. Will the child need benefits into adulthood?
- Who will be trustee? Trustees should be selected carefully. While a family member can co-trustee, the main trustee should be a professional with experience in this area.
- The child’s living arrangements: How is the child expected to live in adulthood? Location, degree of independence and additional needs should all be considered, as should the possibility that the child’s needs will change over time.
- Documents and additional arrangements: Setting up the trust will likely be part of a wider plan for the child’s future, and integrating and managing it into the broader care plan may require arranging powers over financial, medical and legal matters which will require regulatory approval and documentary support. This is one reason why financial planning should form part of a wider estate-planning conversation.
If you’d like to know more about setting up your own trust for a child with special needs, Legacy Trust Company has decades of experience in the Hong Kong trust and fiduciary industry and would be pleased to talk with you or your advisor.