Special needs trust planning begins with trust

Caring for a loved one with special needs is a lifelong commitment with a myriad of complexities.  Most of the initial conversations we have with the family responsible for caring for special needs individuals are focused on everything besides financial planning.  Often, family members are simply looking for someone to listen to them; to understand their unique challenges as they often spend endless hours researching the best possible healthcare agencies and educational facilities and the physical and psychological impact on their family dynamics can be daunting.  For any parent, the importance of financial planning can easily get lost in the chaos of daily life, and navigating the options to provide financial security for a special needs family member can be even more overwhelming. 

Special Needs Trusts (SNT) are designed to allow financial resources to remain available to assist an individual challenged with special needs to receive Medical Assistance (MA), Supplemental Security Income (SSI), and/or Mental Health and Intellectual Disability (MH/D) benefits.

There are a variety of Special Needs Trusts that can be created to specifically address the individual’s needs.  It is absolutely vital that family members, or the individual themselves, work with trusted advisors to choose the right type of trust planning.  We always recommend including three professionals in the conversation:  a seasoned attorney experienced in special needs trust creation, a qualified financial advisor to help manage the assets within the Trust, and an accountant to direct the funding and distribution.  Because the benefactors of these Trusts are typically consumed by the care they provide to the beneficiary, it is so important that they are able to rely on a trusted team to guide them through the process without feeling that they have to devote additional energy to understanding every nuance of the governmental regulations pertaining to Special Need Trusts—of which there are many.

As financial advisors, we advise that a Special Needs Trust be created when an individual is currently relying on, or eventually will apply for, one or more of the governmental assistance programs that I mentioned above.  We recommend this regardless of whether their family considers themselves wealthy or not—it is a typical misconception that only the wealthy should engage in this type of planning.  The reasons are simple:

  • If an individual is receiving governmental assistance, or plans to do so in the future, the amount of assets in that individual’s name will directly affect whether they qualify for assistance.  The special needs individual is only allowed to maintain a very minimal amount of money and financial resources to stay eligible for these benefits.  Very minimal.
  • Often, a friend or relative believing they are doing the right thing for their loved one will leave money to the individual through their Last Will and Testament or life insurance policy, for example.  Because it is not necessarily their responsibility to understand the rules governing assistance eligibility, they may inadvertently disqualify the beneficiary from being able to temporarily or even permanently receive the care they need in the way they need it.
  • A Special Needs Trust will help to protect the individual’s assets from creditors, from liability concerns, and from those that could try to take advantage of that person who may not be in a position to recognize that something unethical or nefarious is occurring with their assets and resources.
  • Lastly, many special needs individuals simply are unable to manage their income and assets themselves—someone should be placed in charge to make certain that their financial resources are being managed and distributed properly—for their best interest.  A Special Needs Trust can provide this protection.

Once a Special Needs Trust has been established for the beneficiary and a responsible party has been selected as the Trustee to manage it, it’s time to fund the Trust.  Depending on what type of Trust is created, either the individual’s own assets are moved into the trust, or gifts from relatives and friends will be used.  The most common ways are as follows:

  • Gifts from family, friends, and relatives
  • Proceeds of personal injury settlements
  • Proceeds of a life insurance policy
  • Funds or other assets from an inheritance

Often, the most confusing part of this type of planning is how exactly the Trustee can use the money and resources for the benefit of the individual.  There are certainly limitations on the use of the funds in a Special Needs Trust, but the bottom line is that the funds may be used only to supplement income from their governmental benefits.  For example, the following are typical uses of Trust funds:

  • Medical and dental care
  • Rehabilitation and therapeutic devices
  • Education assistance
  • Entertainment
  • Transportation

We stress the importance of truly understanding the distribution limitations, making sure that all the funds are used for the benefit of the special needs individual, and that meticulous records are kept for auditing purposes. 

I have found that the very best advice I can offer to the family members seeking guidance in every stage of caring for a special needs individual is to find your trusted advocates and advisors.  So much time and energy is often spent only to discover that there is no reason to reinvent the wheel.  Someone has gone through a similar situation, navigated the quagmire of available resources and support, and has a vested interest in growing a closer community of family, friends, and special needs individuals to bring awareness to their cause.  Find these people to lean on.  And then someday, be that person on which others can lean.

I believe ultimately, safeguarding assets to provide for the individual’s needs throughout his or her lifetime is essential to achieve peace of mind for everyone involved.

Marc Tannenbaum is a principal and senior partner of Signature Financial Planning.  He provides comprehensive planning advice to high net-worth individuals, small and mid-sized businesses, charitable foundations, and government institutions.

Marc maintains the ChFC® and, most recently, acquired the CLU® designations which are two of the most respected credentials for advanced financial planning in the industry.  He has also completed the CFP® certificate curriculum through the American College of Financial Services. 

Marc is currently enrolled in the AEP® program through the Irwin Graduate School of the American College of Financial Services.  The Accredited Estate Planner® designation is awarded to attorneys and accredited financial advisors who demonstrate an advanced knowledge, experience, education and ethics in the field of estate planning.  Marc is a Registered Representative and Investment Advisor Representative with NFP Securities, Inc, licensed in securities and insurance.

Marc attended the University of Maryland, College Park and Duquesne University in Pittsburgh.