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Special Needs Trusts: Important Information for Families Caring for a Loved One with a Disability

Posted September 26, 2014 at 7:03 PM

Families caring for a child, or other family member, with special needs face many challenges and decisions.  There are often critical financial decisions that need to be made for the well-being of the child and the rest of the family.  These may include:
•    Enhancing and protecting the life of the child, especially in the event the parent(s) is deceased
•    If the parents have other children, retaining sufficient funds for the child with special needs, while still being able to treat other children equally
•    Providing for the child without jeopardizing the child’s public benefits, and even the parent’s own potential public benefits 

What is a Special Needs Trust?
Established for the sole benefit of a person with disabilities, special needs trusts, sometimes called supplemental needs trusts, can protect the assets of the person with special needs, and ensure that he or she is not disqualified from receiving public benefits, such as Medicaid or Supplemental Security Income (SSI).  Special needs trusts are valuable in that they can provide for continued care, support and management, by setting aside assets — of the beneficiary or a third party — for the benefit of a person with special needs. This enables the person with disabilities to benefit from the trust without sacrificing public benefits.

The Role of a Trustee
In addition to choosing the appropriate type of trust, families need to carefully consider choosing the right trustee to administer the trust.  Although any competent adult may generally serve as trustee, most people choose a family member, financial planner, CPA, or attorney. Since the trustee role is so important, the choice should be a business decision, rather than an emotional one.

The named trustee will need to make many informed decisions. For example, in administering a special needs trust, the trustee will need to balance the tax implications of distribution decisions with the impact on public benefits to the beneficiary.  Income will generally be taxed at a lower rate if distributed to the beneficiary than if retained by the trust.  However, if the trust pays out too much income to a beneficiary on public assistance, that may adversely impact the beneficiary’s eligibility for public assistance.

An important feature of administering special needs trusts is the preparation of a letter of intent. This is often overlooked, but is critical to proper administration of the trust. The letter of intent provides all of the information that would be necessary in the event the parents or guardian of the beneficiary pass away before the child or beneficiary.

For more information about how trusts can benefit families and about the role of trustees, contact Helen Whelan has more than a decade of experience advising families and individuals in planning for their futures. As an attorney and Certified Public Accountant with a Master’s Degree in Taxation, Ms. Whelan is uniquely qualified to assist her clients in accomplishing their goals. She is particularly sensitive to the needs of families who are caring for loved ones with special needs, and counsels clients about issues related to Medicaid qualification, asset protection and provisions for long-term care.