What to know about special needs trusts, from costs to finding help

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According to experts, special needs trusts are essential to the well-being of a person with special needs.

“The most important reason for a special needs trust is that people with special needs are often unable to make appropriate financial decisions for themselves and/or are at risk of financial abuse by others,” said Certified Financial Planner Mike Walther, founder of Oak Wealth. Consultants in Northbrook, Illinois.

Equally important, according to Charles Italiano, assistant manager of Westchester Disabled On the Move in Yonkers, New York, “is maintaining eligibility for public benefits such as [Supplemental Security Income] and Medicaid, and enable children with special needs to lead fulfilling lives.”

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Why do many people with special needs need government assistance?

Because the cost of care can be astronomical, says Michael Beloff, Partner and Chartered Special Needs Consultant with Belvedere Wealth Partners in Stamford, Conneticut.

For example, day support services for a severely disabled person can cost more than $100,000 a year, while a group home in the Northeast can cost anywhere from $140,000 to $300,000 a year, a he declared.

“Depending on the nature of the individual’s impairment, most families cannot afford to fund these services out of pocket during their lifetime and after their death,” he said. “That’s where Medicaid comes in.”

As SSI and Medicaid recipients are entitled to limited income and only $2,000 in liquid assets, it becomes imperative for families to house assets in special needs trusts to ensure their loved ones don’t lose out. not this vital government financial support.

Special needs trusts should be drawn up as soon as the child has a special needs diagnosis, Walther said.

Two types of trusts

There are two types of special needs trusts. Ideally, you need both, according to Italiano.

• Third party“This type of trust is funded with the parents’ money, solely for the child’s needs, and will never be in the child’s name,” Italiano said. “After the parents die, the funds go to someone other than the child.”

These are most often funded by insurance and funds from the parents’ estate and can be set up without funds at first, Beloff said.

Once funded, the trust has its own tax identification number and its own tax return must be filed. These funds are intended to cover expenses that Medicaid or SSI do not cover, such as travel, clothing, computers, etc.

Watch for conflicts of interest if the trustee is also the ultimate beneficiary.

Michael Beloff

Certified Special Needs Consultant with Belvedere Wealth Partners

“It’s a way to make sure the money will be there and will be overseen by a qualified fiduciary, like a family member, friend, or an outside party like a bank or non-profit organization,” he said. Beloff said. “Watch for conflicts of interest if the trustee is also the ultimate beneficiary.”

It’s important to let other family members know they should make donations or bequests to the trust to avoid negative effects on the special child’s eligibility for Medicaid, said attorney Ray Falcon, director of the Falcon Law Group in Woodcliff Lake, New Jersey.

• First party: This trust is created with the individual’s own assets to protect any income, whether earned or inherited, from exceeding Medicaid income and asset limits. Distributions must be approved by the trustee, Italiano explained.

“This type of trust may have a repayment provision, so that any funds left over after the individual passes go toward reimbursing accumulated Medicaid expenses,” he said.

Work with lawyers

Costs vary for setting up special needs trusts in different parts of the United States, but adding them to a general estate plan could add $2,000 to $6,000, depending on the complexity.

Parents should work with attorneys experienced in special needs planning, particularly because incorrect language can disqualify a trust, Walther said.

Falcon recommended questions for lawyers to consider. “You should ask a potential lawyer, ‘How many trusts have you written?’ and ‘Have your trusts been reviewed and approved by Social Security and Medicaid in my state?'”

Reputable sources for finding specialist lawyers and planners include the Academy of Special Needs Planners and the Special Needs Alliance.

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