Apr 20, 2017

Necessary Steps When Considering Special Needs Planning

By United Capital

Many of us have relatives, friends, or colleagues who are challenged on a daily basis by a physical, mental, or developmental disability. In fact, one in five U.S. residents has some level of disability according to the U.S. Census Bureau. Disabled persons face a unique set of challenges overcoming their disabilities to live full and fulfilling lives. So too, do their guardians, whom plan carefully to ensure that their loved ones are receiving the extra attention they need and deserve. One particular challenge a guardian may face is effectively allocating funds to a disabled loved one without disqualifying that individual from government assistance they would otherwise be entitled.

Special needs planning encompasses the various financial life planning facets that accompany caring for an individual with special needs. Including but not limited to providing for the disabled individual, as well as, taking into consideration the needs of the family.

Common Goals of Special Needs Planning:

  • Balancing your present and future needs with your loved one’s present and future needs
  • Creating and implementing personal care, financial, and legal plans
  • Communicate such plans to all relevant persons
  • Review and revise plans as circumstances change
  • Assure family members that loved one’s needs have been adequately addressed

Special needs planning should include the various personal care, financial, and legal documents necessary to clarify who will be in charge of what should the unexpected occur. The personal care plan should clarify who will provide care to the loved one, whether it is you, and/or other family members or friends, or a full- or part-time professional. As well as, where your loved one will live and what care is specifically needed. A transition plan will answer “what if” questions. Such as, continuity of care and supervision, choosing alternate caregivers and services to replace those in original plan if needed, and anticipate and prepare for future life events. Finally, you should have a sophisticated legal plan in place. To do so, you will need to find and hire an experienced estate planning or special needs planning attorney who will help coordinate your will with other financial plans that have, or will be made.

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Legal Documents:

  • Medical directives
  • Durable powers of attorney
  • Last will and testament
  • Letter of intent or instruction (not legally binding)

One method to manage the financial life needs of a disabled love one is to install a “special needs trust” for the benefit of the loved one. A special needs trust is a planning and savings vehicle to provide additional support for your loved one without negatively affecting their eligibility to receive government benefits. Often referred to as “supplemental care trusts” the trust provides a way for you to supplement, not supplant, government benefits such as Medicaid and supplemental security income (SSI). The trust can be designed to either provide support while you are alive, or after your death.

Typically, these funds are provided to the beneficiary in addition to government assistance, which provides financial assistance for the disabled’s basic needs. The supplementary funds can be used for non-basic needs and enhanced quality of life. To install a special needs trust you should consult with a legal professional well versed in special needs and estate planning.

Part of your special needs plan will include appointing a trustee, someone you trust and is competent to manage the money within the trust. Depending on the design of the trust, the Trustee is either responsible for distributing the funds within the trust to your child without disqualifying them from government benefits or transferring funds from your estate to the trust and then to the child if designed to function after death.

The prime benefit of the trust is supporting your child financially and maintaining his or her short and long-term eligibility for government benefits. It also provides a secondary benefit. Utilizing the trust, friends and family can make gifts of money, allowing them to contribute to the financial well-being of your child. There are many options to consider when funding a special needs trust. Some of the options to consider include:

  • Life insurance; it is one method to arrange for funds after your death. It may be prudent to consider this early on because life insurance is at it’s cheapest when you’re young and healthy.
  • Standard government benefits, such as Social Security survivor benefits
  • Savings and investments, including money in retirement funds (that can be distributed at an older age or transferred after death)
  • Assistance, gifts, and inheritances from friends and family members
  • Property
  • Military benefits

Types of Trusts:

  • Third-party settled trust: This is the most commonly used type of trust. The trust design allows your loved one to remain qualified for government assistance while the trust provides for quality of life, such as travel, a specially equipped van, or home health care or companions.
  • General support trust: This provides for all general support of the child and disqualifies him for any assistance.
  • Self-settled trust: This trust is created by the disabled person for their own benefit, dispersing funds, as they need. However, if the disabled person also takes government assistance, the assistance must be repaid with assets left in the trust after the disabled person has died.

How Funds from a Special Needs Trust Can Be Used

Rules vary state by state regarding how money in special needs trusts can be used but generally funds in the trust can be used for supplemental needs—those needs not met by government benefits such as Medicaid and SSI. Common uses of money in special needs trusts include:

  • Transportation
  • Home health aids
  • Education
  • Rehabilitation
  • Computer equipment
  • Medical and dental care not provided by government benefits

How Funds from a Special Needs Trust Cannot Be Used

Again, each state sets its own rules on how funds can or cannot be used, but generally the trustee of your special needs trust cannot use funds for:

  • Food
  • Housing
  • Property taxes
  • Home insurance
  • Utilities
  • Transferring cash to your child with special needs

In conclusion, If you have a loved one who is disabled or has special needs: Ask yourself a few questions. First, are you concerned about his or her future personal needs and financial security? Second, are you concerned about meeting both your loved one’s needs and your own? If your answer to either of these questions is yes, all or some of the planning we have covered above may be appropriate for you.

United Capital

United Capital

United Capital Financial Advisers, LLC (“United Capital”), is an affiliate of Goldman Sachs & Co. LLC and subsidiaries of the Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management and financial services organization. Investing involves risk and clients should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.

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