Special Needs Require Special Estate Planning

By Susan Frasca

Parents of children with special needs deal with many of the same issues as most parents when it comes to planning for their child’s future, education and well-being. And then some. While most people grasp the importance of estate planning on some level, be it a basic will or living trust, parents of special needs kids are confronted with sometimes unfamiliar and intimidating issues.

“While setting up a trust is of the utmost importance, it is really the end result of a process that involves careful thought, planning, research and special needs counseling,” says Neal Winston, President of the Special Needs Alliance.

Special Needs counseling is a specialty of estate-planning professionals who have in-depth knowledge of public benefit eligibility issues, which is why special needs trusts were developed in the first place. They know the ins and outs of how to set up trusts, choose trustees and distribute funds in the manner that most benefits the individual with special needs and their supporting families.

Though the perceived emphasis for the public is on setting up the trust, Winston says that a special needs counselor must take a much broader approach, looking at all parts of the situation, from how much to put into the trust to how to fund it to ensuring that parents will have enough left to support themselves and other children as well.

What factors play a role when special needs counselors develop a trust?

  • Analysis of the beneficiary’s life
  • The needs of the beneficiary
  • The public benefits the beneficiary may be entitled to
  • The level of family support
  • The rehabilitative, educational and work opportunities available

Every scenario is different and professionals who are well-versed in special needs estate planning can help parents determine the best course of action for their situation.
Trusts

There are two main purposes behind the development of a discretionary trust:

  • To supplement (not replace) other sources of support, particularly public benefits, including subsidized housing, Medicaid, and SSI.
  • To manage the assets of an individual who cannot manage them himself or is vulnerable to the assets being wasted.

Special needs children are entitled to a host of government subsidized programs and benefits, including healthcare, education and rehabilitative services. Parents need to be aware of any restrictions that may jeopardize their child’s eligibility to receive these services.

How a trust is funded is very important and could make all the difference in a special needs child’s eligibility for public benefits, which can amount to a substantial sum in medical expenses. The federal government places certain restrictions that impact both first party and third party trusts. (First party trusts are funded with the individual’s own funds and assets; third party trusts are funded via third party assets and funds, such as by parents or other relatives.)

Simply put, all special needs trust usually have these terms:

  1. Someone other than the beneficiary must be appointed as trustee.
  2. The trust must be irrevocable to the beneficiary.
  3. The trust must be set up to be a supplement to public eligibility benefits.

A main consideration is that the beneficiary have no control whatsoever over the management or distribution of funds if the trust is to work properly for public benefit eligibility.

 

Trustees

When a Special Needs trust is created, it is often because the recipient is either unknowledgeable about handling amounts of money, extremely vulnerable to others taking advantage of them, or simply has enough to deal with just managing the disability without worrying about major financial decisions.

Because of these factors, parents have good reasons to appoint a responsible, independent third person to handle the affairs of their special needs child, even as they grow into adulthood.

Choosing the best trustee is one of the most important aspects in setting up a special needs trust. Parents often choose themselves, but trusts may not be needed until after they are gone. Siblings may not be the best option either. The role of a trustee is often a parental one of control over the other individual. Unless this is the nature of the sibling relationship to begin with, both parties are likely to become resentful and unhappy.

Winston says that co-trustees, a combination of a professional paired with a trusted family member, is a good alternative.

Why appoint co-trustees?

  • Managing a trust can be time-consuming and unnerving even for the most well-meaning family member.
  • The professional can determine how to best make fiduciary distributions that will not impact the beneficiary’s public benefits eligibility, handle taxes and investments, and essentially makes all of the unpopular, undesirable decisions that need to be made, taking the pressure off of the co-trustee family member.
  • The family member, who has more direct contact with the beneficiary, understands his or her individual needs and desires. As co-trustee, they provide compassion and insight, balancing out the needs of their loved one with the capacity of the trust to provide for those needs.

 

Allow for Change

Sometimes things or people don’t work out the way we think. In keeping with planning ahead, the trust should allow flexibility to change administrative terms to keep up with program changes, as well as for some type of succession plan. Over the past decade or so, Winston says that Trust Protectors or Trust Committees, chosen by the family, are increasingly being drafted into trusts to oversee and make necessary changes in how the trust is managed if the trustee is not working out as planned or to handle other major issues that arise.

He also suggests that parents write a separate letter of instruction to trustees, in addition to the creation of the trust. The letter can be changed from time to time as situations change. The reason for this is that while the trust may be established today, it may be necessary tomorrow or not until ten years from now. Updating the letter gives parents flexibility in how they want the trust to be managed as their special needs child grows through life.

 

Funding & Distribution

Funding a trust is a transitory type of planning that needs to be revisited periodically depending on the funder’s own financial situation. Trusts can be funded over the course of the lifetime of the parents, through a will upon death of a parent, and/or with life insurance policies. It is important to advise other relatives who might leave something to the disabled child to either put in into a trust arrangement that they create, or to put it into the trust created by the parents.

It’s one thing to put money into a trust, but quite another to use it, called a “distribution,” so the money lasts and with minimal impact on the individual’s public eligibility benefits. Different public programs have different rules and the decision as to which program is more important is based on the needs of the special needs child. Again, knowledgeable special needs counselors can help in determining how and where to best use trust money.

For example, the SSI program will reduce benefits somewhat if the trust pays for food or shelter related expenses. If the disabled individual pays for those items directly from the monthly benefit, the trustee can pay for other needed things such as transportation, educational needs or telephone or cable, without reducing benefits.

 

 

Pitfalls to Avoid:

  • Always use a trust fund rather than give money directly to your special needs child. Liquid assets such as an educational account or savings bonds, or an inheritance can negatively impact their ability to receive public benefits.
  • Don’t automatically leave all of your assets to a “healthy” child assuming they will care for their special needs sibling. In addition to possible resentment and lack of desire to take on the responsibility, unintentional, unforeseeable circumstances, including bankruptcy, divorce, and your “healthy” child’s inability to qualify for education loans or grants because of that money – may deplete the money you intended for your special needs child.

Special needs planning is really a fluid process. Winston points out that “there is no one-stop shopping at a certain point, time or age that will take care of the situation forever.”

Parents should review their plans from time to time, particularly when certain milestones are passed and the child progresses from one stage to another. For example, toddler to school-age; school-age to physical adulthood; end of school education support to work, rehabilitative or group housing outside the parent home; final transition in which the parents’ capacity to take care of the child as well as of themselves, diminishes.

Look for nationally recognized disability organizations that have local support groups to get tips and recommendations for services to help address the specific needs of your special child. Local schools are also an excellent resource for parent support groups.

The Special Needs Alliance, a national nonprofit organization of expert attorneys, offers a wealth of information and resources, including a free, downloadable guide for trustees on administering a special needs trust in both English and Spanish, as well as a list of attorneys who can help you.

 

While raising her two children, Susan Frasca worked as a writer and editorial assistant for an award-winning parenting magazine, and quickly discovered that researching and writing about parenting issues is far easier than actually doing the parenting!  Married once and still to the best man she’s ever known, and with those children now grown adults, she writes on a variety of topics and has scores of bylines in multiple publications, as well as many other articles, blogs and books for which she can’t take credit – the downside of ghostwriting!

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