Question:

Can a special needs trust for a minor child pay the parents’ mortgage or rent? What about buying a house that the whole family lives in?

Response:

This is a common question where the trust for the child has substantial assets and those of the family are more limited, often because one or both parents must work less in order to care for the child. On the one hand, all parents are responsible for the basic care and living expenses of their children. On the other, having a kid with special needs often makes it even harder for young families to make ends meet. The trustees can see payment for housing as a legitimate expense if it’s necessary to keep a roof over the child’s head. Typically, trustees will look at the entire situation and the trust’s overall disbursements. If they can be kept within 3% of the trust assets each year, the trust will be able to grow enough to keep up with inflation. If the request for funds is greater than this amount, the trustee will have to determine whether the current needs are such that they can be justified, even if they deplete the trust’s long-term purchasing power.

There’s also a distinction between paying rent and paying a mortgage or buying a house for the family. If the trust pays to buy a house or for the downpayment and a significant amount of the mortgage, then it should own the house, either entirely or as co-owner with parents who are paying some of the housing costs. This can be problematic if, when the child reaches the age of majority, he moves out of the house, whether because he’s capable of living on his own or moves to a group home. Then there’s no justification for the trust continuing to hold the house and to permit the parents to live there rent-free. This can create pressure for the child to continue to live at home, which may or may not be in his best interest.

Finally, what happens if the beneficiary of the special needs trust passes away? While often trusts assets pass to the beneficiary’s family, this is not always the case. And if it’s a (d)(4)(A) trust, the state will have to be reimbursed for its Medicaid expenses on the beneficiary’s behalf, possibly forcing the sale of the house.

So, the answer is yes, a special needs trust can help pay housing expenses for the beneficiary’s family, but no more than the trust can afford and it can create some difficult issues. It should be avoided if possible.

Related Articles:

Can My Son’s Special Needs Trust Own a Share of My House?

Special Needs Trusts and Subsidized Housing

Planning for Your Child with Special Needs

The (d)(4)(A) Trust Safe Harbor for Medicaid and SSI