Parents who are planning for a disabled adult or minor child have several options when making financial plans. One option is for parents to distribute the disabled child's portion of an estate to others, often a sibling, with the unwritten understanding that the sibling will use the assets for the disabled person's care. The problem is that the parent's wishes are not enforceable and the assets are subject to spousal and child support, creditor claims, or whims of the sibling - leaving the disabled child with nothing.
A direct gift to the disabled child would eliminate these problems, assuming the disabled child is able to manage the funds, but also may prevent the child from receiving governmental assistance such as Medicaid or Social Security due to excess resources.
A solution to both problems would be establishment of special needs trust of which several are available. All of these trusts have technical requirements including age, funding sources, and the like.
Discretionary Trusts: This type of trust is established by someone other than the disabled child. The trustee must be given absolute and total discretion, with no identifiable standard, how expenditures to or for the child are to be made. If correctly drafted, the assets will not be "available resources" for Medicaid purposes, nor disqualify a disabled child for Social Security.
Supplemental Service Trusts: This type of trust may be established for a person being served by the State or local Developmental Disability Service.
Medicaid Payback Trusts: The primary advantage of this type of trust is that the assets are not considered to be available for Medicaid purposes so the child can receive Medicaid services including nursing home care. The trust can provide funds for things that Medicaid does not pay for. For example, the trust may pay for travel, hair care, recreation, and the like which improve the quality of the disabled person's life. One requirement, though there are others, is that the trusts provide for repayment to Medicaid upon the disabled person's death.