Making a special needs financial plan
How do you begin? While securing your disabled child’s financial future can seem like a daunting task, professionals trained in dealing with the specifics of special needs trusts, including eldercare attorneys, can help. The Academy of Special Needs Planners and the Special Needs Alliance both can put you in touch with qualified experts.
Here is a checklist of what should be in your plan:
1. Establish a trust. In order to qualify for government benefits such as SSI and Medicaid, your child can never show that he has more than $2,000 in the bank. A special needs trust allows you to set aside money for your child’s future expenses without putting his government benefits at risk. There is no limit to how much money a trust can manage. A trust is protected from creditors, including credit card companies, and cannot be considered an asset as part of a divorce proceeding if your child marries.
There are essentially three kinds of trusts: a first-party trust funded by the disabled person; a third-party trust funded by a relative or other interested party; or a pooled trust, which is managed by an outside trustee, often a nonprofit agency.
A first-party trust is best if the disability happened later in life, after your adult child already gained assets such as a home. It protects his personal funds while guaranteeing access to government benefits. The caveat is that a first-party trust must reimburse Medicaid, after the disabled person dies, for the medical bills it covered.
A third-party trust can be funded by parents or anyone except the beneficiary. This trust does not have to reimburse the state and can be willed to another party when the disabled person passes on.
A pooled trust is often used when a current trustee cannot find a family member to take over the trust in case of his or her own illness or death, and cannot afford to hire a private trustee. The pooled trust is managed by a nonprofit organization skilled at trust maintenance.
2. Name your successor. Every trust is managed by a trustee who determines how the money will be spent. In most cases this is a parent. But a trustee should choose a successor earlier rather than later. This way the trustee-in-waiting will learn what goes into managing the trust and will be ready to take over in the event of your illness or death.
“A trustee doesn’t have to have any specific professional expertise, but the person does have to be good with money,” says Karen Greenberg, director of Prosperity Life Planning, a not-for-profit corporation dedicated to teaching families how to plan for disabled children’s futures. “They have to have a good heart and an understanding of the child’s special needs.”
If your named trustee can be relied upon to look after your child’s well-being but isn’t good with the financial stuff, consider a co-trusteeship, says Harry S. Margolis, an elder law attorney and cofounder of the Academy of Special Needs Planners, which keeps planners up to date on current law and helps connect clients with planning professionals. In this scenario, a trust company is hired to handle fiduciary responsibilities such as managing investments, filing tax returns, making disbursements and budgeting.
In addition to naming a successor trustee, designate a successor guardian as well. The guardian is responsible for making medical decisions for the disabled person.