We no longer support this browser. Using a supported browser will provide a better experience.

Please update your browser.

Close browser message

Wealth Planning

Providing for children with special needs

It can be important to structure gifts to a special needs beneficiary if you don’t want the beneficiary to be disqualified from receiving government benefits.


Structure gifts to beneficiaries with special needs without jeopardizing their ability to receive government benefits.

If you would like to provide financially for a child with special needs, you may want to do so in a “Supplemental Needs Trust” or “Special Needs Trust” (SNT). It is very similar to a regular trust, but it can provide for your child’s needs without jeopardizing your child’s ability to qualify for need-based governmental benefits.

Trust basics

A trust is usually created by the “grantor” of the trust—the person who provides the funding. For children with special needs, the grantor is usually the parent or guardian of the child, or at times may be the child. A trustee is the person the grantor names to be in charge of the trust. The trustee is mainly responsible for investing trust assets (or hiring someone to invest them) and making (or withholding) distributions to the trust’s beneficiary. The beneficiary is the person or people for whom the trust is created.

Sometimes, parents want to set money aside for a child who they believe cannot handle money independently, but who isn’t likely to qualify for government benefits as the result of a physical or mental disability. This type of set-up would be a standard trust with restrictions on when the child can receive distributions.

This WealthFocus deals specifically with the trust provisions for parents who want to make sure their children can qualify for disability-related government benefits.

Special needs provisions

The purpose of creating a special needs trust is to provide funds for your child while at the same time preserve your child’s ability to qualify for need-based governmental benefits, most commonly Social Security Disability Income (SSDI) or Medicaid. An individual does not need to be a minor to have a special needs trust, but there are special rules for additions to a trust for a beneficiary who is age 65 or older.

In most cases, government benefits require the recipient to have no more than a certain amount of assets or income or both in order to qualify. Children with physical or mental disabilities who would otherwise qualify for benefits might not qualify if they either inherit or are given assets from their parents outside of a trust structure, or if they receive a settlement as the result of medical malpractice, an accident that was the cause of their disability, etc.

The government generally looks at assets in a standard trust that can be spent on behalf of the person with a disability as that person’s income or assets, which would usually disqualify the beneficiary from receiving government benefits.

A special needs trust generally has to be set up so that distributions for the person with a disability can only be made to supplement, rather than to substitute for, benefits received from the government. Additionally, for trusts that the beneficiary funds on their own (usually with the proceeds of a settlement), the trust must require that when the person with a disability dies, the trust will reimburse the government (usually the state where the person lives) up to the amount of benefits that the government provided during the person’s lifetime, with any excess assets passing under the terms of the trust. Finally, the trust will often specify certain expenses, like extracurricular activities for the person with a disability, that should be paid for with distributions.

In some states, trustees are allowed to make distributions that would jeopardize the beneficiary’s ability to qualify for government benefits if the trustee believes the beneficiary would be better served by receiving the distribution—as long as those distributions are authorized by the trust document.

Creating a trust for your child

Special needs trusts are most often drafted as part of a parent’s will or revocable trust and only take effect on the parent’s death, since the parent is likely to take care of the child’s needs during the parent’s lifetime. Frequently, but less often, they are created by parents who want to set aside money during their lifetimes to supplement the benefits their child is receiving.

Special needs trusts settled by someone other than the child can be somewhat more flexible in the way distributions are made for the child since the money funding the trust was never the child’s money. The creator of the trust can determine what happens to the balance of the trust’s assets, if any, when the beneficiary dies, since there is no requirement to reimburse the state government for the benefits the child received.

Trusts funded by the child

When the child is going to receive a settlement, the child, often acting through their parent or legal guardian, creates and funds a trust for their own benefit. Trusts that are settled by the beneficiary need to be drafted very carefully to make sure that the child with a disability does not retain any authority over trust assets that would cause them to be disqualified from receiving government benefits.

Further resources

Special needs trusts are fairly technical. It is a good idea to make sure your attorney is intimately familiar with their operation. If you don't have enough money to warrant a separate trust, certain organizations can also provide pooled special needs trusts.

J.P. Morgan advisors are here to assist you in thinking about making gifts to a child with special needs, but you should always engage independent legal counsel before undertaking any sophisticated planning.

 

 

 

 

IMPORTANT INFORMATION

This material is for information purposes only, and may inform you of certain products and services offered by J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). The views and strategies described in the material may not be suitable for all investors and are subject to investment risks. Please read all Important Information.

GENERAL RISKS & CONSIDERATIONS. Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation/diversification does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g. equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan representative.

NON-RELIANCE. Certain information contained in this material is believed to be reliable; however, JPM does not represent or warrant its accuracy, reliability or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. No representation or warranty should be made with regard to any computations, graphs, tables, diagrams or commentary in this material, which are provided for illustration/reference purposes only. The views, opinions, estimates and strategies expressed in this material constitute our judgment based on current market conditions and are subject to change without notice. JPM assumes no duty to update any information in this material in the event that such information changes. Views, opinions, estimates and strategies expressed herein may differ from those expressed by other areas of JPM, views expressed for other purposes or in other contexts, and this material should not be regarded as a research report. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Forward-looking statements should not be considered as guarantees or predictions of future events.

Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by J.P. Morgan and/or its officers or employees, irrespective of whether or not such communication was given at your request. J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions.

Legal Entity and Regulatory Information.

J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment advisor, member FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. Certain custody and other services are provided by JPMorgan Chase Bank, N.A. (JPMCB). JPMS, CIA and JPMCB are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.

Bank deposit accounts and related services, such as checking, savings and bank lending, are offered by JPMorgan Chase Bank, N.A. Member FDIC.

This document may provide information about the brokerage and investment advisory services provided by J.P. Morgan Securities LLC (“JPMS”). The agreements entered into with JPMS, and corresponding disclosures provided with respect to the different products and services provided by JPMS (including our Form ADV disclosure brochure, if and when applicable), contain important information about the capacity in which we will be acting. You should read them all carefully. We encourage clients to speak to their JPMS representative regarding the nature of the products and services and to ask any questions they may have about the difference between brokerage and investment advisory services, including the obligation to disclose conflicts of interests and to act in the best interests of our clients.

J.P. Morgan may hold a position for itself or our other clients which may not be consistent with the information, opinions, estimates, investment strategies or views expressed in this document.  JPMorgan Chase & Co. or its affiliates may hold a position or act as market maker in the financial instruments of any issuer discussed herein or act as an underwriter, placement agent, advisor or lender to such issuer.

© 2021 JPMorgan Chase & Co. All rights reserved