A. You can create a special needs trust.
For example, a couple whose child has severe autism might want a special needs trust because they’re worried about how the child will survive after the parents’ deaths.
Reasons a trust is beneficial: Many people depend on government benefits, such as Social Security, Medicaid, rehabilitative care and transportation assistance, which are available for children and adults with special needs. However, these benefits can be slashed if an individual’s assets exceed a certain level. This amount can be so low that the disabled person cannot live a comfortable existence without additional assistance. If loved ones give the individual too much money, or provide assistance in a way that breaks the rules, the person could lose benefits. This is a trap many families fall into because they view financial planning as too time-consuming and taxing — considering they’re already stressed taking care of loved ones with special needs.
A special needs trust allows parents (and others who care about someone with a disability) to comply with government regulations, yet invest and save money to meet a disabled individual’s financial needs.
In most cases, a special needs trust is a “stand alone” document, but it can be part of a will. Assets in a special needs trust aren’t considered countable assets for purposes of qualification for certain governmental benefits based on need. (Disqualification from government benefits could occur if an individual’s assets hit just $2,000 and their annual income reaches $10,000.) Parents and others can also bequeath assets to the trust, rather than directly to the individual.
Funds in a special needs trust provide for supplemental care beyond what the government provides, including expenses such as utilities, medical care, special equipment, education, job training and entertainment. A special needs trust does not belong to the person with a disability, but is established and administered by someone else. The person with the disability is simply nominated as a beneficiary and is usually the only one who receives the benefits. The trustee is given discretion to determine when and how much the person should receive.
Many factors must be taken into consideration including assets and debts; estimated spending; life expectancies of the parents and children; and costs of care. In estimating the necessary size of a trust, one popular method is to estimate an individual’s yearly budget and divide by the Consumer Price Index. Planners then determine additional funds that are needed by taking into account the current medical diagnosis and other factors.
Consult with your estate planning professional about a special needs trust. Knowledgeable advisers are vital in making sure a trust complies with all regulations. Advisers can also facilitate communication among family members.
[authorblurb name=”Mary Yaconiello” image=”5364″ url=”/about/leadership-team/mary-t-yaconiello/” text=”is a Senior Tax Manager at BeachFleischman. Working in public accounting since 1988, she has extensive experience providing tax planning and compliance services.”]