Special Needs Trust Fairness Act passes!

Forming a first party Special Needs Trust has, up until now, required a parent, grandparent or a guardian to establish the trust. When the original law allowing First Party Special Needs Trusts was passed, it did not contemplate that many disabled people were perfectly capable of setting up their own trusts. Instead, if someone no longer had a parent and was not in need of a guardian, they had to seek permission from the court.

The Special Needs Trust Fairness Act eliminates that requirement. No longer will disabled people without parents or grandparents face lengthy legal proceedings.

The President still has to sign the Act into law, but is expected to do so. Many states will start following the new law immediately, but it is possible that New York, among other states, to seek further approval from the New York legislature before implementing the Act.

Divorce and Special Needs Children

Raising a child with special needs is hard on marriage.  Today, the divorce rate among all couples is over 50%.  Although statistics differ, there is no question that divorce rates are even higher among parents of children with special needs.

When a couple divorces, it is even more important to consider the financial needs of their child with special needs than those of their other children.  Child support charts do not address those needs.  A special needs child often has even more expenses than a child without special needs.  There are all types of therapies: occupational, speech, physical, psychiatric.  There is increased need for paid respite care for the caregiver parent.  There are non-prescription costs of vitamins and other dietary needs.  There are assistive devices, specialized cars, endless items that children with special needs require.

Child Support for Children with Special Needs

For children who are receiving needs-based government services such as SSI and Medicaid, parents and matrimonial/divorce lawyers should consider establishing a first-party self-settled special needs trust.  Child support belongs to the child, not the parent, so the trust cannot be a third party trust.  Child support in New York extends past a child’s 18th birthday until they are 21, whereas the child is an adult for Medicaid purposes in New York at 18.  Establishing an SNT for those years may be essential to getting proper services for the disabled child.

Guardianship

For those children with special needs who will require a guardian, the divorcing parents should consider which parent, if not both, will become the guardian once the child turns 18.

Education

Many divorce agreements call for the parent without physical custody to pay half of a full-time college education.  Those children with special needs who attend college often cannot manage a full-time program and the separation agreement should consider this possibility.  Also, the child may continue to attend college well past their 21st birthday, so this too should be considered when making financial decisions as to education.

Redrafting Your Estate Plan after Divorce

Divorcing parents of children with special needs should retain an attorney with experience in special needs planning.  If you have any questions, please feel free to call me.

Choosing a Trustee for Your Special Needs Trust: Part Two

In Part One of Choosing a Trustee for Your Special Needs Trust, I discussed all the different responsibilities and jobs a trustee must fulfill to properly administer the trust.  It is also important to really assess both the current and potential future needs of your child.

Considerations to Use in Choosing a Trustee

There are a variety of factors that must be weighed and balanced in order to make the best choice possible to manage the Supplemental Needs Trust’s assets while at the same time contribute to the well-being of your special needs child.

  • What is the nature of the disability?
  • How old is the trust beneficiary?
  • Where does the disabled person currently live, and where might that person live in the future?
  • What government benefits is the child with special needs now receiving and what might they become eligible to receive?
  • What is the life expectancy of the disabled person?
  • What is the source of funding of the Special Needs Trust?
  • What skills does the potential trustee have?
  • Are there sufficient funds for the  trustee to be able to hire competent advisers such as accountants, attorneys and caregivers?
  • How available is the trustee to manage both the financial and emotional needs of the special needs child?
  • Are family members a resource to manage either the trust or a trustee?
  • Are non-family members available such as a teacher, family religious leader, an attorney or accountant?  Perhaps you or your child belong to a national organization such as the National Alliance on Mental Illness (NAMI) or the Arc (ARC)?
  • Does the disabled person have a case manager provided by the state, or a care manager provided privately?

Solutions

In Part Three of Choosing a Trustee for Your Special Needs Trust I will offer a number of different solutions to the problem of finding a trustee to administer your trust who meets the qualifications and considerations that are important to both you and your special needs child.

Is Funding a Special Needs Trust a Guessing Game?

How do parents of children with special needs, whether that child is 5 or 35, predict just how much money their disabled child will need for their future comfort?  There are many variables to consider, including:  life expectancy; the rate of inflation; investment return; the amount of benefits the government will provide decades from now (although it is fairly safe to assume recipients of Supplemental Security Income (SSI) will never receive enough cash benefits to rise above the poverty level).

Luckily, special needs financial calculators are available free of charge to help you and your estate planning attorney or financial planner determine the cost of providing your child with lifelong support.  Just click on one of the following links to start the process:

Taking the Guesswork out of Funding a Supplemental Needs Trust

Step One:  Assess your child’s future capabilities.  This is more difficult if your child is still young.  Speak to your child’s medical professionals and ask for an evaluation of your child’s prospects, both short- and long-term.  If your child is already an adult, you will already have a better understanding of what his or her needs are now and might be in the future.

Step Two:  Take an inventory of what you already own.  Add life insurance policies, if any.

Step Three:  Identify current and future living expenses and future income sources for your special needs child.  Your disabled child may be able to earn income and contribute financially.  Consider the government benefits and support your child is already receiving or might receive in the future.  If your child is currently living with you, will that child be eligible for subsidized housing?  Will there be gifts and inheritances from other family members?

Step Four:  Place a dollar value on anticipated income and expenses. The online calculators use broad categories such as housing, transportation, medical care, education, or you can use more detailed lists within each category.

Step Five:   Calculate!  Using assumptions about the rate of inflation and your investment returns, you should now have a target to help you plan for your child’s future needs.

Working Towards Your Goal

Although many of these questions are very difficult for parents to consider, and very difficult to answer, beginning the process of planning for the future security of your loved ones will make you feel more secure now.

As always, if you have any questions about this post, please feel free to either call or contact me through  the contact or comments form.

How Life Insurance Can Help Your Special Needs Child

Many parents are concerned about how they can fund a supplemental needs trust, especially in these rough economic times.  Parents are also concerned about how their other children will feel if they divide their estate assets unevenly, providing more for their siblings with disabilities.  These siblings might have even more resentment if they end up being financially responsible after you are no longer able to supplement your special needs child’s benefits.  Children with autism have a normal life span and could easily need financial assistance until they are well into their 80s!  Additionally, they may need to pay for care that you are no longer able to provide, such as a care manager or help with cleaning and shopping.

Parents with a disabled child should consider buying life insurance to wholly or partially fund the special needs trust.  There are several types of insurance to consider.  Term life is the least expensive option, but the premiums increase each year as the insured (that’s you) gets older.  Since these policies need to be renewed, at some point these policies are typically dropped due to the steep increases in premiums as you age or experience health issues.  There are several types of permanent life insurance including whole and universal.  The least expensive option is known as survivorship or second-to-die life insurance.  This term policy is payable only upon the death of the second insured, when it is most needed.  It is best to consult a life insurance agent with expertise in this area.

If you have any questions about this post,  please feel free to call or drop me a line on either the comment or contact form.

Types of Special/Supplemental Needs Trusts (SNTs)

The terms “special” and “supplemental” are often used interchangeably. Frequently, “special” refers to a first party, or self-settled trust, while “supplemental” refers to a trust settled by a third party which supplements basic food and shelter. Other sources define “special” as one in which the trustee has limited discretion to make distributions, whereas “supplemental” is one in which the trustee has unlimited discretion. For simplicity and clarity, I will often just refer to both types of trusts as SNTs, while specifying whether the trust is funded by a third party or self-settled.

There are two main types of SNTs. The biggest difference between the two types of trusts is the identity of the person whose assets are used to fund the trust. Both types of SNT can and should be individually designed to meet the specific needs of the disabled person.

The first type of SNT, the self-settled SNT, is funded with the assets of the person with the disability. Frequently, this type of SNT is created when the disabled person themselves receives a sum of money, often as a result of a lawsuit. Sometimes a self-settled SNT needs to be created because the disabled person received an inheritance, but their families had not planned with a qualified estate lawyer to avoid that pitfall. It is important to plan now so that your assets flow directly into a third-party SNT in order that any funds remaining upon the death of the disabled person do not have to be paid back to Medicaid.

The main drawback to self-settled SNTs is that after the disabled person dies, Medicaid or the Office of Mental Health is entitled to receive all remaining assets in the trust. For those disabled persons who have received a large sum of money as the result of a lawsuit, the ability to fund an SNT, enabling them to use that money for their supplemental needs as opposed to having the entire sum be used towards shelter and housing, is a wonderful option. However, before the disabled person receives any gift, inheritance or life insurance policy, the grantor of the assets should consult with an attorney who focuses on special needs planning.

The second type of SNT, the third-party SNT, is usually funded with the assets of a parent, grandparent or guardian, and can be funded either during the parents’ or grandparents lifetimes, or upon their deaths. The trustee is designated the beneficiary of life insurance policies, annuities, bank and/or brokerage accounts.

As we shall discuss in further blog posts, when created properly, a trustee can be instructed as to how you would like your loved ones’ needs supplemented with the assets from the third-party SNT.

When Family Wants to Help Your Child with Special Needs

Very often a family member such as a grandparent, aunt or uncle or even a sibling would like to give the disabled individual a cash gift or other assets. Although the services available through government benefits are substantial, the actual cash benefits are not. Outright gifts might cause the disabled person’s assets to increase above the minimum established by the government (currently $3,000 for Medical Assistance and $2,000 for SSI).

Once a Special or Supplemental Needs Trust has been set up by the parent, grandparent or guardian for the disabled person, other family members can provide additional assets for that individual, creating a benefit without disqualifying the individual from their government benefits. Family members can contribute cash, stocks, bonds and even real estate for the benefit of the disabled individual.