UTILIZING A SPECIAL NEEDS TRUST

Neal A. Deutsch, CFP^®

Published in Rivertown Journal, July 2007

As we move along in life, we may come to meet those that some would classify as one with “special needs.” As we get to know these people, we learn (usually with great delight) that these folks are indeed wonderfully special. Regardless of age and circumstance, at times certain provisions must be made for their care. Our article in this issue is meant to give you a small insight as to how a trust may assist you in this need.

As a parent or guardian of a special needs person, the emotional issue is distinctly separate from the financial, and in some ways very closely knit. Our love for the person that we are responsible for drives us to strive for the very best care for them, which often means utilizing funds that were earmarked for other goals and objectives, thus splitting the use of the funds for both guardian and beneficiary. While each case we see in our firm is different, the common concern we see is the preservation of assets to take care of our loved one, and the concern of how that person will be taken care of if the main guardian is either unable to care for them, or passes away.

During the lifetime of the guardian, all financial decisions are up to the guardian, as they are the owner of the privately held assts, In other words, the guardian or parent can spend their money as they so please. Once they pass away, the utilization of a Special Needs Trust is often used to continue the financial assistance of the beneficiary. The trust is an independent entity, has it’s own tax ID number, and is managed by a trustee named by the guardian. It is the trustee’s role to dispense all funds for the beneficiary’s benefit, file the tax returns, hire an investment manager, and otherwise manage the assets of the trust. Note that the trustee may or may not be the successor guardian: it is advised that the two roles be separate and distinct as to alleviate a conflict of interest. The trustee’s role is to take care of the money and the successor-guardians role is to take care of the person.

A parent of a child with a disability should review each asset to see whether or not it will pass to that child interest at time of the parent’s death. For example, life insurance, annuities, IRAs, pension benefits, joint bank accounts, etc., have a specific named beneficiary, and often pass to persons other than those named in one’s will or trust. Check the beneficiary designations on your accounts: designated beneficiaries will always supersede that which you arranged in your will document. This is an often-overlooked estate planning practice that we see regularly in or office.

The Medicaid program, which pays medical expenses for the poor, has limits on the amount of assets that a recipient can own or can earn during each year that welfare benefits are paid. In order to qualify for the program prior to spending down one’s estate, some individuals attempt to give their assets to relatives or invest them into an exempt form, such as a personal residence in which the spouse resides. Single persons sometimes transfer their residence to their children and retain the right to live in the house for the remainder of their lifetime. The law denies a person’s eligibility for Medicaid benefits if assets were transferred less than 60 months before the application for benefits. This is a complicated and changing area of the law.

Seek Professional Guidance - Since the laws in this area are very complex and vary from state to state, experienced, knowledgeable legal counsel should be retained to draft the appropriate documents. Careful planning is crucial to protect you, your special loved one, as well as the rest of the family.

Neal A. Deutsch is a Certified Financial Planner^™, Registered Securities Principal and President of Chestnut Investment Group in Suffern, NY, helping people with financial planning since 1984. Please feel free to call Neal at 845.369.0016 or email him with your questions at neald@chestnutinvestment.com Feel free to visit his website at www.chestnutinvestment.com