Understanding Special Needs Trusts

     Estate planning is difficult enough for most families who must plan for their own financial requirements during retirement years and deal with uncertainties involving their own future health and well-being. Typical estate plans involve preparation of a will (often accompanied by a trust) which designates how family assets are to distributed in case of death, evaluation of life insurance plans and other family assets for future financial needs, and designation of those who will act as guardians for minor children if the parents are deceased.
     Parents of children who are disabled or have special needs must, in addition, consider the future requirements of their special child. Who will care for the child when they are no longer present or physically able? Will government programs be available to assist? Will the child continue to qualify?
     Financial experts agree that in order to begin to answers questions like these, it is important to start right where you are at today. Government programs are often necessary to fill the gaps that the parents of a disabled child are unable to fill, and so many disabled children qualify for Supplemental Social Security (SSI) or Social Security Disability Income (SSDI), which are available to pay benefits to persons who have a physical or mental impairment which prevents them from performing substantial gainful employment. If a child is not qualified to receive SSDI on their own or their parents' contributions to Social Security because he or she does not meet specific program requirements, they fall under the supplemental programs which are based upon financial need, specifically SSI and Medicaid.

Plan for the Future

     Careful planning by parents is required to assure that their own estate plans or those of other relations do not jeopardize the eligibility of the special child for these important program benefits, which may be worth many times the value of the disqualifying inheritance. Unlike SSDI. and Medicare, eligibility for SSI and Medicaid benefits require that the person have limited income and resources according to program guidelines. Income is broadly defined for this purpose to include anything that the individual could sell or convert to meet his basic needs for food, clothing and shelter. With certain exceptions, the recipient of these forms of assistance may own only $2,000 of resources without being disqualified from the programs. Inheritance and gifts are specifically included as income when they fit this definition Great care must be taken to avoid casual gifts to an SSI recipient that might cause him or her to exceed the income limitations.

The Key Ingredient

     For most families with special children, the Special Needs Trust is a key ingredient in the planning solution. A properly drawn Special Needs Trust can provide a repository for inheritances and gifts that are intended to benefit the special child, while protecting access to these important government programs and providing a life-long support system.
     Under these trusts, the beneficiary has no power over the assets in the trust, and trust income and assets are used to provide life-enhancing extras for the child rather than items of food, clothing and shelter which would constitute income under social security regulations. Funds are provided directly to providers of services, and the trust itself may own items of property that are used by the beneficiary.
     Life insurance is often used to assure that adequate funds are available to the trust to provide for the supplemental needs of the beneficiary, in case of premature death of one or both parents or upon the parents' retirement. Careful financial planning can help in choosing types of amounts and types of insurance to fund these trusts.

Choosing the Advocate

     In addition to financial considerations, the family planning a Special Needs Trusts must consider what family members are available to look after the needs of the special child and act as his or her advocate when the parents are no longer on the scene. It is important as time goes by to consider the relative ages of the advocate and the special child. There are other considerations, too. For example, it is often the case that the individual in whom the parents have the greatest confidence to oversee medical care and recreational needs of the child may not be the ideal person to manage finances.
     The abilities and dispositions of family members must be considered, then, as well as their affinity for the child and knowledge of his or her habits and needs, in deciding the roles to be played by the various caretakers in the absence of the parents. Perhaps a financial institution is the best choice to manage the assets of the trust, with a brother or sister monitoring the child's needs and helping determine how benefits are paid out. In other cases, a family member may be called upon to handle the trust investments and accounting.

Final Thoughts

     A properly drafted Special Needs Trust supplements, but does not to replace, federal and state benefits for the special child, enabling the child to continue to enjoy a fuller life, enhanced with pleasures and pursuits enabled by his or her parents during their lifetimes, long after the parents have gone to their reward.