Recently, Ellen, the mother of a little boy with cerebral palsy [1] who writes the blog To The Max [2], ran a “Q and A” on the topic of Estate Planning for children with special needs. Here, answers to your most pressing questions from Diedre Wachbrit Braverman, an attorney and one of the cofounders of the Academy of Special Needs Planners [3](visit the site to find an attorney in your area).
Q: “What’s the very first step you need to take to begin planning for a child with special needs? I don’t know where to start!”
Related: Financial Planning: For Those Who Are at the Starting Line [4]
A: The very first place to start is selecting a special needs planning attorney [5] that you trust to be your guide. That attorney will help you establish a special needs trust (SNT) [5] for your child and can help you in other areas like finding the right life insurance provider if that’s something you’re interested in. A special needs trust attorney should be called if your child may not be self-supporting as an adult. A special needs trust is a trust with a trustee that generally inherits money from the parents when the parents die. The trust will ensure that your child receives the inheritance that you wish for him/her to receive, without having a negative impact on the public benefits the child would otherwise lose.
Q: “Do you usually do a special needs trust through financial planners or do you do it through lawyers?”
A: Custom special needs trusts are set up by attorneys. I always recommend people work with attorneys who focus on special needs planning.
Q: “How do we find reputable people to help us navigate this scary planning process?”
A: I recommend visiting the Academy of Special Needs Planners’ [3] website, where you can access a database of highly qualified attorneys who specialize in special needs planning. All of the member attorneys have a strong interest in special needs planning and a keen understanding of the challenges you and your family face. As you’ll see, ASNP members are located in many places across the country, so you can easily identify a planner in your local area.
Q: “What are typical costs associated with setting up the trusts?”
A: Fees for special needs trust vary greatly across geographies, but you can expect that your special needs trust will probably cost more than the average in your town for a revocable living trust, because it is such a specialized and highly customized document. If someone offers you a trust for less than $2,000, be very cautious. Sometimes cheap, all-boilerplate special needs trusts are used as “loss leaders” to lure unsuspecting parents into high pressure life insurance sales pitches for high-commission, low-quality products.
Q: “If you’re a family on a limited budget, how can you set up a special needs trust if you can’t afford to hire an attorney?”
Related: Simple Ideas to Help You When You Face Financial Hardships [6]
A: One way is to join an existing special needs trust called a “pooled trust,” though it can still cost a couple thousand dollars. Many attorneys accept credit cards. Some may be willing to set up payment plans for you.
Q: “Is setting up a special needs trust like setting up a foundation, with a board or trustees?”
A: When you set up a special needs trust, you will select a trustee to administer the trust. The trustee should be someone that you trust to be responsible, ethical and knowledgeable enough to act in your child’s best interest. If you don’t have a family member or close friend who fits the bill, you may consider a corporate trustee (like a bank).
Q: “I am confused about the money and how it can be spent. Can it be spent on old medical bills? Can the money be spent on related medical things, like an adaptive car, for instance?”
A: It really depends on what state you live in. Some states have very strict guidelines for what money can be spent on. While in others, the trustee can spend the money on whatever he/she decides is best for the beneficiary, like an adaptive car. Be sure to ask your attorney what the laws are in your state, and while you’re planning it, consider if and where your child may move after you’re gone.
Q: “Do you need special permission to spend money?”
A: The Trustee, who can be you if your trust is very carefully drafted, does not need anyone’s permission. But if the trustee spends money in a way that violates the state’s SSI or Medicaid rules, the beneficiary could be penalized with a loss of benefits.
Read: Social Security Benefits: Understanding How To Work? [7]
Q: “What is necessary to tell our relatives to keep in mind when leaving our children money in their will?”
A: It’s a great idea to tell anyone who might have named your child in their own plan about the special needs trust. That’s also a good reason why your special needs trust should be a separate document with a name of its own: So that they can name the trust in their own plans and leave money to the special needs trust.
Q: “What are the financial advantages/disadvantages to setting up a special needs trust? For example, if we put money into it now, would we be able to take it out later if we needed it?”
A: The only advantage to putting money into a SNT while you are alive is if you want that money out of your estate for tax purposes. If your trust is revocable and you put money in it, you can take it out, but there is no advantage to putting the money in. If your trust is irrevocable, there is an estate tax advantage to putting money in but you cannot take it out later for yourself.
Q: “Is a special needs trust included as part of our assets? If so, would it affect our family receiving financial assistance?”
A: A properly drafted special needs trust is not part of your assets or your child’s assets, for purposes of receiving financial assistance.
Helpful Articles
- Financial Planning: For Those Who Are at the Starting Line [4]
- “Instruction Manual” for Your Child with Special Needs [8]
- Special Needs Planning: What is a Special Needs Trust? [9]
- Special Needs (or Supplemental Needs) Trusts 101 [10]
- Common Mistakes Parents Make with Their Special Needs Trusts [11]
- Guardianship: A Basic Understanding for Parents [12]
- Social Security Benefits: Understanding How To Work? [7]
- Does Your Child Qualify for Supplemental Security Income? Dispelling Misconceptions [13]
- 9 Things You Need to Know to Maximize Your Child’s Benefits [14]
- Able Accounts and Taxes: What Special Needs Families Need to Know [15]
- Able Account or Special Needs Trust: How to Decide? [16]
- ABLE Accounts: 10 Things You Should Know [17]
- Handling Your Child’s Diagnosis: Six Things Parents Should Do For Themselves [18]
- A Special Need Planning Timeline: 9 Steps to a Sound Family Plan [19]
- Plan Early for Your Child’s Long-Term Security [20]
- Able Account or Special Needs Trust: How to Decide? [16]
- How to Select a Special Needs Attorney [5]
- Quick Way to Begin Writing a Letter of Intent [21]
- What Do You Do When Financial Hardships Hit [22]
- Simple Ideas to Help You When You Face Financial Hardships [6]
- List and Explanation of Disabilities for Disability Awareness Month [23]