Thursday, August 20, 2009
Estate planning for children with special needs: some helpful answers
A month or so ago, I asked for your questions about estate planning for kids with special needs. They've been graciously answered by Diedre Wachbrit Braverman, an attorney and one of the cofounders of the Academy of Special Needs Planners. Eternal thanks to Christina Beavers, the woman who works with ASNP who made this happen.
Obviously, these questions are just a broad overview of planning for children with special needs; you would need to contact an attorney for further help. I know the whole thing is a little overwhelming but remember, this is not something you have to do tomorrow, next week or next month. With young kids, you have time.
"What’s the very first step you need to take to begin planning for a kid with special needs? I don’t know where to start!"
The very first place to start is selecting a special needs planning attorney that you trust to be your guide. That attorney will help you establish a special needs trust (SNT) 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.
"Do you usually do a special needs trust through financial planners or do you do it through lawyers?"
Custom special needs trusts are set up by attorneys. I always recommend people work with attorneys who focus on special needs planning.
"How do we find reputable people to help us navigate this scary planning process?"
I recommend visiting the Academy of Special Needs Planners’ 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.
"What are typical costs associated with setting up the trusts?"
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.
"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?"
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. And some may be willing to set up payment plans for you.
"Is setting up a special needs trust like a setting up a foundation, with a board or trustees?"
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).
"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?"
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 when you're planning consider if and where your child may move after you’re gone.
"Do you need special permission to spend money?"
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.
"What is necessary to tell our relatives to keep in mind when leaving our children money in their will?"
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.
"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?"
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.
"Is a special needs trust included as part of our assets? If so, would it affect our family receiving financial assistance?"
A properly drafted special needs trust is not part of your assets or your child's assets, for purposes of receiving financial assistance.
Photo by Stefano Agosti