Special Needs Planning
How Special Needs Planning Can Help Protect Your Loved One’s Well-being?
Caring for a loved one with special needs is in itself an incredibly rewarding but extremely complicated responsibility. Whether your loved one has physical, intellectual, or developmental challenges, long-term support in their well-being requires keeping them well beyond just daily interventions; it means planning carefully. Planning for special needs is tailored around the financial, medical, and personal care that your loved one may need in the course of his or her life. Many families set themselves up to unknowingly jeopardize crucial government benefits or run afoul of legalities with improper actions.
Preserving Government Benefits
Each of these programs has stringent income and asset limits, and although a good-intentioned relative gives an outright gift or bequest, it could result in inadvertent disqualification. Families can offer additional monetary support and yet retain eligibility using tools, such as Special Needs Trusts (SNTs). Funds in the trusts will be used for supplemental needs, such as therapy, education, or travel, while the beneficiaries maintain access to public resources.
Special Needs Trust (SNT) Establishment
A special needs trust is one of the foundations of a special needs planning program. This kind of trust is an arrangement under which assets are held and managed by a trustee for an individual with special needs. It covers independent care attendants, medical equipment, or recreational activities beyond what government programs cover. The essential point is that the funds are inside the trust and are not to be categorized as part of the beneficiary’s estate as well as that guarantees continuing eligibility for public benefits. The key is to choose the right trustee who will understand well how to manage the assets while also understanding the needs of the beneficiary.
Writing a Letter of Intent
A letter of intent is not a legal document; however, it is an essential piece of planning for special needs. It is directed to future caregivers and provides details about your loved one’s routines, preferences, medical history, education, and personality. No one will know your loved one better than you, and it ensures that knowledge will not fade over time. Favorite foods and activities or behavior triggers and communication preferences can all be included in this letter. It helps create continuity in care, especially in a case where you become incapacitated or die, ensuring that life remains as stable and comfortable for your loved one as possible.
Naming a Guardian or Conservator
As for those with special needs for whom making decisions is not quite possible on their own, they have to be guarded or conserved legally. The legal guardian would then exercise specific family, health, and, in some cases, financial decisions on behalf of that person. One may appoint a guardian after undergoing special needs planning to take over that role at a time when you can no longer complete that assignment. You will be able to exercise control over who will take care of your beloved when you choose to decide in advance and avoid a matter that turns into a family squabble or one in which courts appoint a guardian who may know nothing about your loved one’s needs or values.
Long-term Financial Security Agreed to Save
Special needs planning involves putting your loved one in a financially secure position for the remainder of his or her lifetime. It encompasses providing life insurance policies with the special needs trust as the beneficiary, opening an ABLE account for tax-advantaged savings, and hiring a financial advisor who comprehends disability planning. The intent is to establish an enduring financial plan that meets all the lifetime needs of your loved one, even in the absence of your physical presence. Financial planning will ensure that no other family members are burdened and that your loved one can lead a fine and fulfilling life.
Wrapping Up
Special needs planning is an incredibly loving and foresighted act. It permits the family to provide for long-term needs, protect essential public benefits, and maximize the disabled person’s quality of life. Families can use the Special Needs Trust to write a letter of intent, select a legal guardian, and financially plan comprehensively for the well-being of their loved one in the future. Although it may seem daunting, a consultant of your choice, such as a lawyer or trained planner in special needs law, can walk you through every step, assuring you that your loved one will receive proper care at all times.
Most importantly, special needs planning respects the individuality and dignity of your loved one. It allows you to design a future for them that embodies their personality, preferences, and dreams. With the thoughtfulness and intent you show today, you are creating a holding ground for a future in which your loved one will thrive, comforted, empowered, and held by love.
Different Trusts for Different Estate Planning Purposes
There are a few things all trusts have in common, explains the article “All trusts are not alike,” from the Times Herald-Record. They all have a “grantor,” the person who creates the trust, a “trustee,” the person who is in charge of the trust, and “beneficiaries,” the people who receive trust income or assets. After that, they are all different. Here’s an overview of the different types of trusts and how they are used in estate planning.
“Revocable Living Trust” is a trust created while the grantor is still alive, when assets are transferred into the trust. The trustee transfers assets to beneficiaries, when the grantor dies. The trustee does not have to be appointed by the court, so there’s no need for the assets in the trust to go through probate. Living trusts are used to save time and money, when settling estates and to avoid will contests.
A “Medicaid Asset Protection Trust” (MAPT) is an irrevocable trust created during the lifetime of the grantor. It is used to shield assets from the grantor’s nursing home costs but is only effective five years after assets have been placed in the trust. The assets are also shielded from home care costs after assets are in the trust for two and a half years. Assets in the MAPT trust do not go through probate.
The Supplemental or Special Needs Trust (SNT) is used to hold assets for a disabled person who receives means-tested government benefits, like Supplemental Security Income and Medicaid. The trustee is permitted to use the trust assets to benefit the individual but may not give trust assets directly to the individual. The SNT lets the beneficiary have access to assets, without jeopardizing their government benefits.
An “Inheritance Trust” is created by the grantor for a beneficiary and leaves the inheritance in trust for the beneficiary on the death of the trust’s creator. Assets do not go directly to the beneficiary. If the beneficiary dies, the remaining assets in the trust go to the beneficiary’s children, and not to the spouse. This is a means of keeping assets in the bloodline and protected from the beneficiary’s divorces, creditors and lawsuits.
An “Irrevocable Life Insurance Trust” (ILIT) owns life insurance to pay for the grantor’s estate taxes and keeps the value of the life insurance policy out of the grantor’s estate, minimizing estate taxes. As of this writing, the federal estate tax exemption is $11.58 million per person.
A “Pet Trust” holds assets to be used to care for the grantor’s surviving pets. There is a trustee who is charge of the assets, and usually a caretaker is tasked to care for the pets. There are instances where the same person serves as the trustee and the caretaker. When the pets die, remaining trust assets go to named contingent beneficiaries.
A “Testamentary Trust” is created by a will, and assets held in a Testamentary Trust do not avoid probate and do not help to minimize estate taxes.
An estate planning attorney in your area will know which of these trusts will best benefit your situation.
Reference: Times Herald-Record (August 1,2020) “All trusts are not alike”
What are the Estate Planning Basics?
Estate planning is an all-encompassing term that refers to the process of organizing, inventorying and making plans for the proper handling of your affairs after you die, including your dependents as well as your assets, valuables and heirlooms. This typically involves writing a will, setting up a power of attorney and detailing funeral arrangements with the help of an experienced estate planning attorney.
CNET’s article entitled “Estate planning 101: Your guide to wills, trusts and all your end-of-life documents” provides us with some of the key steps in getting started with estate planning.
Create an Inventory. Your estate includes all of the things you own, such as your car and other valuable possessions, plus “intangible assets” like investments and savings. If you own a company, that’s also part of your estate. Everything you own should be given a valuation. Have your home and other valuables appraised.
Evaluate your family’s needs. A big reason for estate planning is to make certain that your family is cared for, in the case of your death or incapacitation. If you’re a breadwinner for your family, the loss of your income could be devastating financially. Consider a life insurance policy to help provide a financial cushion that can be used to cover living expenses, college tuition cost, and mortgage payments. You may also need to designate a guardian, if you have children under the age of 18.
Make job assignments. Dividing up a person’s property can be a tough and emotional task. Make it easier by ensuring that all of your assets have been assigned a beneficiary. You’ll also name a few people to coordinate the process of dividing up your belongings. List your beneficiaries, so they know who gets what.
Create a Will or Trust. You should have a legally binding document setting everything out in as much detail as possible. A will is a legal document that directs the way in which you want your assets and affairs handled after you die. This includes naming an executor, who is someone to manage how your will is executed and take care of the distribution of your assets. A Trust is this, and much more. It allows you to build in protections that you can’t get with just a will. It also allows you to avoid probate, which a will doesn’t. Consult with a professional estate planning attorney to see what is best for you and your family.
Help your family if you’re incapacitated. A living will (also known as a medical care or health care directive) states your healthcare preferences, in case you’re unable to communicate or make those decisions on your own. If you need life support, a living will states your preferences.
Start estate planning sooner rather than later. Talk to an experienced estate planning attorney today.
Reference: CNET (June 8, 2020) “Estate planning 101: Your guide to wills, trusts and all your end-of-life documents”
Balancing Retirement Planning with Special Needs Planning
Many government benefits are “means tested,” which can put financial restrictions on how much money the individual can have in their name. Careful estate and financial planning is important, advises the article “How Having A Child With Special Needs Impacts Your Retirement Planning” from Forbes.
In most instances, providing financially for children ends a year or two after college. However, for the family with a special needs family member, the financial assistance does not end. It’s also likely that the child will live with their parents well into the parent’s retirement. The family will need more money during retirement to provide for their child’s needs, including therapies, transportation and hobbies.
The family may choose to have the child live in a group home setting, but those costs are substantially higher, depending on the home and the level of care required.
Parents are often more focused on planning to care for their disabled family member and overlook their own retirement planning. It is important to do both.
Social Security planning is a bigger factor for the family with a special needs family member. If parents decide to collect their Social Security benefits, they need to map out what different scenarios could mean, including delaying when to take benefits and spend down assets.
If the disability of a child with special needs began before age 22, the child may be eligible for Social Security Disability Insurance, generally half of the last surviving parent’s Social Security payment in retirement (in addition to what the parent receives). When that parent dies, the amount increases to three-quarters of the parent’s benefits. This must be calculated in terms of income now for the child while the parents are living and after the parents pass.
It’s critical for the parents of an individual with special needs to do a careful budget analysis of their own retirement income and what they will need to care for their child. Once they understand these numbers, they can figure out what assets and income streams will make the most sense. A professional financial advisor can be very helpful for this process.
The family may need to set up a special needs trust (SNT), which is best done with an experienced estate planning elder law attorney. Life insurance may be purchased to fund a child’s lifetime needs and be placed in the SNT.
The family will also need to address tax planning. Traditional 401(k) plans and IRA accounts are not taxed until withdrawals are taken. There have been a number of changes to the law in recent months, not the least of which is the CARES Act, which allows withdrawals to be made from retirement accounts with no extra penalties.
Reference: Forbes (July 1, 2020) “How Having A Child With Special Needs Impacts Your Retirement Planning”
Possible Pitfalls for Special Needs Planning for Parents
Public benefits for disabled individuals include health care, supplemental income, and resources, like day programs and other vital services. Some benefits are based on the individual’s disability status, but others are “needs tested,” where eligibility is determined based on financial resources, as explained in the article “Planning for loved ones with special needs” from NWTimes.com.
“Needs testing” is something that parents must address as part of special needs planning, in concert with their own estate planning. This ensures that the individual’s government benefits will continue, while their family has the comfort of knowing that after the parents die, their child may have access to resources to cover additional costs and maintain a quality of life they may not otherwise have.
Families must be very careful to make informed planning decisions, otherwise their loved ones may lose the benefits they rely upon.
A variety of special planning tools may be used, and the importance of skilled help from an elder law estate planning attorney cannot be overstated.
One family received a “re-determination” letter from the Social Security Administration. This is the process whereby the SSA scrutinizes a person’s eligibility for benefits, based on their possible access to other non-governmental resources. Once the process begins, the potential exists for a disabled person to lose benefits or be required to pay back benefits if they were deemed to have wrongfully received them.
In this case, a woman who lived in California, engaged in a periodic phone call with California Medicaid. California is known for aggressively pursuing on-going benefits eligibility. The woman mentioned a trust that had been created as a result of estate planning done by her late father. The brief mention was enough to spark an in-depth review of planning. The SSA requested no less than 15 different items, including estate documents, account history and a review of all disbursements for the last two years.
The process has created a tremendous amount of stress for the woman and for her family. The re-determination will also create expenses, as the attorney who drafted the original trust in Indiana, where the father lived, will need to work with a special needs attorney in California, who is knowledgeable about the process in the state.
Similar to estate planning, the special needs process required by Medicaid and the SSA is a constantly evolving process, and not a “one-and-done” transaction. Special needs and estate planning documents created as recently as three or four years ago should be reviewed.
Reference: NWTimes.com (June 21, 2020) “Planning for loved ones with special needs”
What Can a Strong Estate Planning Attorney Help Me Accomplish?
The Legal Reader’s recent article entitled “When Should I Start My Estate Planning?” explains that, as we settle down, we should start considering how we’ll provide for and protect those you love.
Talk to an experienced estate planning attorney—one with the knowledge and skill to help you design a workable, legally binding estate plan that will keep your assets safe as they accumulate, protect your spouse and children and consider the possibility that you may become incapacitated when you least expect it.
No matter what your age, the estate planning attorney you hire should have outstanding credentials and testimonials to his/her efficiency and personal concern.
This legal professional must be able to:
- Listen, understand, and address your individual needs
- Clarify your options
- Draft, review, and file all necessary estate planning documents
- Make certain your estate plan covers all contingencies; and
- Is prepared to modify your documents as your life circumstances change.
When you see that the future is unpredictable, you realize that estate planning can help you make that future as secure as possible.
Estate planning can be as complicated as it is essential. Accordingly, regardless of our age, speak with a highly competent estate planning attorney as soon as possible.
As the COVID-19 pandemic has dramatically shown us, planning for the unexpected can never be addressed too soon.
Reference: Legal Reader (June 23, 2020) “When Should I Start My Estate Planning?”
How Does Planning for a Special Needs Child Work?
Funding a Special Needs Trust is just the start of the planning process for families with a family member who has special needs. Strategically planning how to fund the trust, so the parents and child’s needs are met, is as important as the creation of the SNT, says the article “Funding Strategies for Special Needs Trusts” from Advisor Perspectives. Parents need to be mindful of the stability and security of their own financial planning, which is usually challenging.
Parents should keep careful records of their expenses for their child now and project those expenses into the future. Consider what expenses may not be covered by government programs. You should also evaluate the child’s overall health, medical conditions that may require special treatment and the possibility that government resources may not be available. This will provide a clear picture of the child’s needs and how much money will be needed for the SNT.
Ultimately, how much money can be put into the SNT, depends upon the parent’s ability to fund it.
In some cases, it may not be realistic to count on a remaining portion of the parent’s estate to fund the SNT. The parents may need the funds for their own retirement or long-term care. It is possible to fund the trust during the parent’s lifetime, but many SNTs are funded after the parents pass away. Most families care for their child with special needs while they are living. The trust is for when they are gone.
The asset mix to fund the SNT for most families is a combination of retirement assets, non-retirement assets and the family home. The parents need to understand the tax implications of the assets at the time of distribution. An estate planning attorney with experience in SNTs can help with this. The SECURE Act tax law changes no longer allow inherited IRAs to be stretched based on the child’s life expectancy, but a person with a disability may be able to stretch an inherited retirement asset.
Whole or permanent life insurance that insures the parents, allows the creation of an asset on a leveraged basis that provides tax-free death proceeds.
Since the person with a disability will typically have their assets in an SNT, a trust with the correct language—“see-through”—will be able to stretch the assets, which may be more tax efficient, depending on the individual’s income needs.
Revocable SNTs become irrevocable upon the death of both parents. Irrevocable trusts are tax-paying entities and are taxed at a higher rate. Investing assets must be managed very carefully in an irrevocable trust to achieve the maximum tax efficiency.
It takes a village to plan for the secure future of a person with a disability. An experienced elder law attorney will work closely with the parents, their financial advisor and their accountant.
Reference: Advisor Perspectives (April 29, 2020) “Funding Strategies for Special Needs Trusts”
How Can I Fund A Special Needs Trust?
TapInto’s recent article entitled “Ways to Fund Special Needs Trusts” says that when sitting down to plan a special needs trust, one of the most urgent questions is, “When it comes to funding the trust, what are my options?”
There are four main ways to build up a third-party special needs trust. One way is to contribute personal assets, which in many cases come from immediate or extended family members. Another possible way to fund a special needs trust, is with permanent life insurance. In addition, the proceeds from a settlement or lawsuit can also make up the foundation of the trust assets. Finally, an inheritance can provide the financial bulwark to start and fund the special needs trust.
Families choosing the personal asset route may put a few thousand dollars of cash or other assets into the trust to start, with the intention that the initial investment will be augmented by later contributions from grandparents, siblings, or other relatives. Those subsequent contributions can be willed to the trust, or the trust may be named as a beneficiary of a retirement or investment account. It is vital that families use the services of an elder law or special trusts lawyer. Special needs trusts are very complicated, and if set up incorrectly, it can mean the loss of government program benefits.
If a special needs trust is started with life insurance, the trustor will name the trust as the beneficiary of the policy. When the trustor passes away, the policy’s death benefit is left, tax free, to the trust. When a lump-sum settlement or inheritance is invested within the trust, this can allow for the possibility of growth and compounding. With a worthy trustee in place, there is less chance of mismanagement, and the money may come out of the trust to support the beneficiary in a wise manner that doesn’t risk threatening government benefits.
In addition, a special needs trust can be funded with tangible, non-cash assets, such as real estate, securities, art or antiques. These assets (and others like them) can be left to the trustee of the special needs trust through a revocable living trust or will. Note that the objective of the trust is to provide the trust beneficiary with non-disqualifying cash and assets owned by the trust. As a result, these tangible assets will have to be sold or liquidated to meet that goal.
As mentioned above, you need to take care in the creation and administration of a special needs trust, which will entail the use of an experienced attorney who practices in this area and a trustee well-versed in the rules and regulations governing public assistance. Consequently, the resulting trust will be a product of close collaboration.
Reference: TapInto (February 2, 2020) “Ways to Fund Special Needs Trusts”
What’s the Difference Between an Inter Vivos Trust and a Testamentary Trust?
Trusts can be part of your estate planning to transfer assets to your heirs. A trust created while an individual is still alive is an inter vivos trust , also called a Living Trust, while one established within a Will that doesn’t go into effect until the death of the individual is a testamentary trust.
Investopedia’s recent article entitled “Inter Vivos Trust vs. Testamentary Trust: What’s the Difference?” explains that an inter vivos or living trust is drafted as either a revocable or irrevocable living trust and allows the individual for whom the document was established to access assets like money, investments and real estate property named in the title of the trust. Living trusts that are revocable have more flexibility than those that are irrevocable. However, assets titled in or made payable to both types of living trusts bypass the probate process, once the trust owner dies.
With an inter vivos trust, the assets are titled in the name of the trust by the owner and are used or spent down by him or her, while they’re alive. When the trust owner passes away, the remainder beneficiaries are granted access to the assets, which are then managed by a successor trustee. Another advantage of a Living Trust is that it can also help avoid Guardianship if the owner ever becomes incapacitated, Not all trusts are created equal so you need to talk to an experienced estate planning attorney to make sure the trust has the proper language to avoid both guardianship and probate.
A testamentary trust (or will trust) is created when a person dies, and the trust is set out in their last will and testament. Because the creation of a testamentary trust doesn’t occur until death, it’s irrevocable. The trust is a created by provisions in the will that instruct the executor of the estate to create the trust. After death, the will must go through probate to determine its authenticity before the testamentary trust can be created. After the trust is created, the executor follows the directions in the will to transfer property into the trust.
This type of trust doesn’t protect a person’s assets from the probate process. As a result, distribution of cash, investments, real estate, or other property may not conform to the trust owner’s specific desires. A testamentary trust is designed to accomplish specific planning goals like the following (which can also be accomplished in a Living Trust):
- Preserving property for children from a previous marriage
- Protecting a spouse’s financial future by giving them lifetime income
- Leaving funds for a special needs beneficiary
- Keeping minors from inheriting property outright at age 18 or 21
- Skipping your surviving spouse as a beneficiary and
- Making gifts to charities.
Through trust planning, married couples may use of their opportunity for estate tax reduction through the Unified Federal Estate and Gift Tax Exemption. That’s the maximum amount of assets the IRS allows you to transfer tax-free during life or at death. It can be a substantial part of the estate, making this a very good choice for financial planning.
Reference: Investopedia (Aug. 30, 2019) “Inter Vivos Trust vs. Testamentary Trust: What’s the Difference?”