SPECIAL NEEDS
While most parents are focused on the daily needs of their children, many of
them have not taken a long-term view of their children’s financial future.
Parents of children with special needs must take steps to ensure that
financial and medical decisions will continue to be made in the children’s
best interest into their adulthood. Moreover, since individuals are living
longer, a plan must be created so that when parents can no longer care for
their children, the responsibility for providing continued care does not
unexpectedly or by default fall upon siblings, other family members or the
community. Every plan for a child with special needs should include a:
1) Letter of Intent
2) Plan of Care
3) Special Needs Trust
The Letter of Intent describes your goals and expectations for your child’s
future, and contains such concerns as your child’s medical condition,
guardianship needs, ability to work, desired living arrangements, available
transportation, education and employment costs, recreational programs,
financial needs and who the caretakers might be.
The Plan of Care describes your child’s current medical condition and
prognosis for the future, current healthcare providers, therapy, prescription
drugs, special medical equipment and personal grooming needs.
A Special Needs Trust (SNT) allows an individual with special needs to shield
assets for certain purposes while continuing to maintain eligibility to receive
Supplemental Security Income (SSI), Medicaid and other follow-along
benefits. The trust is not just another “boiler-plate” agreement that will
magically address all issues that might impact your child and the operation
of the trust. The following is just a sample of some of the issues that should
be considered when crafting the language for a special needs trust:
1. How much funding is enough? Income and expenses must be
projected based on your child’s life expectancy, while also
incorporating assumptions for an inflation rate, investment returns and
income tax rates. You may also want to consider the financial needs of
your child’s guardian/caretaker.
2. If parents become divorced, you must consider the impact child
support payments may have on the child’s eligibility for SSI.
3. If your child is eligible for a structured settlement due to an injury or
medical malpractice, it must be structured in such a way that the child
will continue to be eligible for government benefits. Your personal
injury attorney may not have the expertise to structure a settlement in
way that best serves your child.
4. For many parents, the majority of their savings is held in some kind
of retirement account, typically an Individual Retirement Account
(IRA). For income tax purposes, it is usually best to stretch distributions
from an IRA out over as long a period as possible. If an IRA account
names a “designated beneficiary”, the designated beneficiary’s age
determines the amount of the distribution. If there is no designated
beneficiary, the account must be paid out in full within five years after
the account owner has passed away. A poorly drafted SNT may not
qualify as a designated beneficiary under IRS rules.
5. Choosing a trustee is important because the trustee must have the
necessary expertise to manage the trust, make proper investments, pay
expenses, prepare tax returns and defend the trust from claims against
trust property. Moreover, the trustee must understand how each
distribution made from the trust will affect the beneficiary’s eligibility
for government benefits and programs. Very few people have this
experience, yet some people are also uncomfortable with a non-family
member managing a loved one’s trust. In this situation, several
alternatives are viable:
a) appoint a family member, who will then hire desired
professionals to provide necessary assistance
b) appoint a family member and another advisor to serve as co-
trustees
c) designate a trust protector, who has the ability to review trust
activity and defend the trust
6. What expenses can’t a SNT pay for? SNTs are designed to
supplement and not replace the basic support provided by government
programs like Medicaid and SSI. So items related to food and shelter
should not be paid through a SNT without consulting an advisor.
7. Planning or lack thereof by other relatives can have dire
consequences for your child. I don’t know of too many parents who
share the contents of their Last Will with their children. In most
situations, the Wills were drafted a while ago and, in general, they
probably leave their entire estate to their children and/or
grandchildren. If a grandchild is receiving government benefits and as a
result of the death of a grandparent or other relative the child receives
an inheritance, the likely result is that the child will be ineligible to
continue to receive such benefits. Please speak with your relatives and
inform them that if they desire to leave a portion of their estate to your
child, they must amend their Will or trust document to reflect that such
portion be directed to your child’s SNT.
8. A SNT may either be created upon the parent’s death or during their
lifetime. If you are aware that extended family members and friends
are interested in making gifts or leaving bequests to the SNT, then the
SNT should be created at this time. So please invite people you know
to contribute to the trust!
Advance planning by parents and families can make a significant difference
in the life of a child with special needs. Please communicate your plans with
your extended family members and friends. Do it today!