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Estate planning for a child with special needs

If your adult child has special needs, he or she may be eligible for some government assistance programs. Three common examples of these programs are food stamps, Medicaid and Supplemental Security Income payments.

While doing your estate planning to leave your wealth to your child, you want to make sure that you do not accidentally make them ineligible for these benefits. If you directly give them the money, they have to factor those assets into their own estate. If they have too much, they need to spend all of it, depleting the entire inheritance rapidly, before they can qualify for assistance again.

You may think that you'd have to leave them a lot of money to cause this issue, but that's not true. Anything over $2,000 runs the risk of revoking their eligibility. A larger estate will just take longer to deplete, but leaving them almost anything at all can cause some financial problems.

Fortunately, there is a solution. What you can do is to set up a special needs trust for your child and then put your assets into the trust, instead of leaving them to your child directly. Doing this means that the trust actually owns the assets, so your child's wealth does not go up. They still qualify for the benefits, and the trust can give them extra money when needed. They don't have to spend it all in order to get their benefits back.

As you can see, this type of estate planning can get complicated and there's a lot at stake, so you must know what options you have.

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