Illinois parents of special needs children face challenges that others are not required to deal with. Among the biggest issues tied to raising a special needs child is finance. Parents are put in a position where they must not only provide for specialized treatment and care during their lives, but they must also plan to provide for their child after they're gone.
Special needs trusts are among the most effective instruments to provide for an individual's financial requirements without compromising his or her rights to receive Supplemental Security Income or Medicaid. The family can fund the trust with cash or other assets for the benefit of the child. If the trust is properly established and managed, the funds therein should not count against the beneficiary when it comes to means testing.
If the trust earns income, it may be subject to income taxes at higher rates than those applied to individuals. A trust that earns more than $12,500 annually, for example, will be taxed at a rate of 39.6 percent. Settlors should thus take care to protect trust income from taxation to the extent possible.
Another option for parents of special needs children is the ABLE account. An ABLE account is a savings account created pursuant to the provisions of the federal Achieving a Better Life Experience Act. Such accounts allow for tax-deferred growth and tax-free distributions for qualified expenses. The balance of the account cannot exceed $100,000 for the beneficiary to qualify for government benefits.
Additionally, ABLE accounts may be less expensive to establish and maintain than special needs trusts. An attorney with experience in preparing estate planning documents may offer advice regarding the effectiveness of the different tools available.