Category Archives: Finance

How to Provide for the Special Needs Child.

Life for the parent of a Special Needs child often involves interaction with medical, therapeutic, pharmaceutical and educational specialists. Most parents learn to adapt and to balance their care and supervision of their Special Needs Child with the rest of their lives. As the child grows older, the challenges faced by the parent change. Fortunately, most people adapt and dealing with the challenges is eased by experience, knowing ‘what works’ for that particular child.

Every parent of an autistic or otherwise physically, emotionally or mentally challenged child worries that when the parent is gone, the child may become a ward of the state, possibly institutionalized or otherwise marginalized from society and robbed of the opportunity for a safe and enjoyable life. That is why with help and thoughtful consideration, it’s possible to create a financial and legal safety net that protects the Special Needs Child, the family as a whole, and the flow of cash benefits paid by the state for the disability.

Planning in Advance is the Key.

If planning is done incorrectly, it can cost the Special Needs Child the benefits he or she is receiving from the state agency that pays the disability payment monthly. That’s because an inheritance – received in the wrong way – can be interpreted by state officials as ‘disqualifying’ the child from further benefits. That is why planning must be careful, precise and undertaken with care.

The Special Needs Trust.

A trust executed by the parents of a Special Needs Child (whether a minor of an adult) needs to be different than that normally used in less complicated situations. The trust used in this case will be what’s called a ‘Special Needs Trust’. This is different from the Living Trust you’ll need for basic estate planning.

The family’s Living Trust will typically provide for any other siblings or grandchildren whereas the Special Needs Trust will have the Special Needs Child as its only beneficiary. A Special Needs Trust is typically irrevocable, so that it’s ‘outside the Taxable Estate’ and may not be changed after you’re gone to suit the whims of those who remain. It typically is drafted so that the benefits of the Trust do not replace or duplicate any disability income benefits paid by a government agency. It is easy for the unwary to trigger a disqualification of government benefits, so the trust must be precisely drafted so the actions of the trustee will not interfere with the state’s purpose and will not unintentionally cause the Special Needs Child to lose his or her benefits. The Special Needs Trust should be drafted by a licensed attorney.

The document must prohibit the trustee (usually a trusted friend or family member) from taking any action that would disqualify the beneficiary (your Special Needs Child) from receiving state benefits. More specifically, it should be drafted to provide ONLY for those things that are not included in the benefits paid by the state. So for example, if the state benefits check that arrives is intended to provide for food, shelter and clothing, the Special Needs Trust cannot provide for those items.

How Does a Special Needs Trust Work?

Typically, the Special Needs Trust provides for ‘life enrichment’ types of experience. For example, it might give the trustee the power to expend funds for music lessons, art lessons, movies, recreation and sports activities, horseback riding lessons, uninsured medical or dental expoenses, special dietary needs, a personal attendant, specially-equipped vehicles, maintenance on the vehicle, trips to destinations like Disney World, and other activities, hobyy or recreational supplies , customized or specialized equipment such as computers, and almost any kind of experience that can help enhance and enrich the quality of life for the Special Needs Child. These needs will change over time.

Those that the Special Needs Child might experience as a minor will likely be different once the child has grown into adulthood. The trustee selected by the parent(s) will typically be an older sibling, an aunt or uncle, or possibly a trusted and long-time family friend whose interest in helping the beneficiary is sincere.

The trustee has an important job. So it’s imperative the right person be selected. If for some unforeseen reason the person selected as trustee cannot serve (due to their own death, disability, resignation, etc.), it’s important to pre-designate a second choice as trustee. The trust itself can also have a mechanism drafted into the trust architecture so an appropriate trustee is always available to serve. The attorney can help guide you in determining the best way to do this.

Funding the Special Needs Trust.

Typically, if you leave an inheritance of any type to a person who is receiving state disability benefits, this will disqualify the person from further benefits. However, the funding of the Special Needs Trust can be done so that this is less of danger.

The most efficient and leveraged way to fund a Special Needs Trust is to use life insurance. Single policies on an individual can be purchased to be sure if the parent is a single parent. But in the case of a married couple, another option is available. It’s called ‘second-to-die’ coverage or ‘Survivorship’ life insurance.

In the case of a single policy (acquired on the life of one person), the death benefits of the policy are paid out at death. For a single parent, the owner and beneficiary of such a policy could be the Special Needs Trust. In the event of the parent’s demise, the trust would receive the death benefit payout from the insurance carrier and the trustee would receive the funds into the trust. In addition to insurance on the life of the parent, additional policies might be obtained on aunts, uncles, grandparents, or siblings – payable to the Special Needs Trust in the event of their death.

In the case of a married couple, the insurance payout on a second-to-die or ‘survivorship’ policy would be made at the death of the last surviving spouse. This type of coverage can be surprisingly less expensive than individual policies. That’s because the risk to the insurance company is lower since it is not required to pay until the death of the survivor. At that time, the death benefit payout would be made to the Special Needs Trust – which is both the owner and the beneficiary of the life insurance policy.

Properly established, a Special Needs Trust can provides financial assets for your child’s care and life enrichment are while still maintaining the child’s eligibility for Supplemental Security Income benefits from the Social Security Administration, or from Medicaid and other programs.

Other Considerations.

Life enrichment activities and other items are provided through the trust. But a supportive and nurturing environment can only be provided by people who care.If your child is legally a minor, it’s important to ensure you name a Legal Guardian in your Will who will be responsible to raise your child to adulthood.

A Legal Guardian with appropriate powers of attorney is an important consideration and needs to be taken into account. In some case, the Legal Guardian may need to continue serving as your child’s Guardian long after the child attains the age of legal majority, so consider carefully who should be your first, second or even third choice.

The time you take in planning a proper legal and financial ‘safety net’ for your Special Needs Child will pay off immeasurably. You will know that you’ve taken care of your child’s future in a way that can provide them with an environment and a lifestyle that gives the best opportunities they can have in life after you’re gone.

? Copyright 2007 Michael L. Potter, Esq. All rights reserved.

By: Michael Potter, J.D.

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