A Guide to Special Needs Trusts
Special needs almost always means there will be an additional financial cost to allow for the same standard of living. The cost of raising a child with autism is $1.4 million for the duration of their life and the cost to society is $126 billion per year in the United States. The cost for a typical child is $240 thousand dollars on average. In regards to the cost of education, a typical child cost $7,552 and a special education child has an average cost of $16,921. There is a staggering difference between the cost for a typical child and a special needs child.
Our son has Mowat-Wilson Syndrome (MWS) and we generally average around 16,000 miles per year in medical mileage. With seizure control medications, monthly IVIG, surgeries, hospital stays, and other medications, we generally have gross medical bills over a million dollars per year. When it comes to medical costs, the price tag on raising a child quickly increases.
With the assortment of special needs in existence, a special needs trust is not for everyone. But if you are thinking about it for a spouse, child, parent, or for whoever, then this is information that may help you.
What Is a Special Needs Trust?
A special needs trust is an entity that is created for an individual who will need assistance but will have no control over the funds and/or properties that are held by this entity. Putting the funds and/or properties under the ownership of the stated trust in order to provide assistance to an individual as directed by the guidelines created.
In other words, because the individual has no control over the monies and/or properties of the trust they do not have to claim them personally and this allows the beneficiary to claim Social Security Income (SSI), Medicaid, and/or Medicare. If an individual has funds or properties they may not be able to claim the assistance that would benefit them until the funds or property were liquidated and lost and would bring the quality of living to a lower standard.
"If there must be trouble, let it be in my day, that my child may have peace." - Thomas Paine
Why Would I Need This?
There are many reasons to look into a special needs trust. There are instances were an individual may have multiple sclerosis (MS), a child may have level 3 autism, MWS, Down Syndrome, or any number of other medical issues that may an individual may need funds and/or property that are protected from lawsuits or managed for the person who is in need of support.
Some people may not have the cognitive ability to handle money or property and some people with medical need may need protection. A special needs trust will be protected from a divorce, a lawsuit, etc. If the beneficiary is in a car accident the funds would be protected, there are so many different avenues that people either ethically or predatory may attempt to gain access to funds of others and in this case the funds and/or property that support the individual with special needs.
This fund is a way to help support a special needs individual without jeopardizing their eligibility for government resources and assistance. Our son will never be able to support himself and will always need assistance and support from others. This will never be a free service. If Rylan was eligible or Medicaid and we left him more than $16,400 or 138% of the Federal Poverty Level (FPL) he would not be eligible for Medicaid because of the amount left to him. With a special need trust, the money could be left to the trust and could still pay for comforts and luxury items. This includes housing, hygiene items, and services and/or items that at comfort to life. While leaving him eligible for Medicaid or other services.
Let's look a little more into how a special needs trust may protect a special needs individuals:
- comfort of living
- program eligibility
- the law
Comfort of Living
When we pass away and our child may be able to live with very little supervision, with a Will we could leave our house to the special needs trust for our child to continue to live in after we are gone. This would provide a familiar shelter for our child without causing additional taxes to negatively impact our offspring.
Or the house could be sold and all the profits put into the trust to help pay for a group home or an appropriate a center such as the Monarch Center for Autism. There are so many options and the best one for the individual you are concerned about may be different for each and every case. But a special needs trust helps with these options and how to fund them in the future.
With investments and money, the trust could provide transportation to certain functions or the purchase of season tickets to specific events or sports that they enjoy. Our son enjoys Cedar Point and government programs won't cover the purchase of a Platinum Pass, but with a trust, it could be set up to purchase a season ticket every year for him and his caregiver.
Most programs have a financial limit that disqualifies people from eligibility. Medicaid has been expanded to persons with disabilities who have incomes up to 138% of the FPL, or $16,400 in 2017. This may seem like a lot but let's look at a situation where this isn't a lot.
Kevin is 20 years old and has a part-time job delivering newspaper for 2 hours a morning. This pays $1,000 a month or $12,000 a year. Kevin needs very limited supervision and lives in a group home. When his mother passes away she leave him $5,000 from her bank account.
This $5,000 gift would push Kevin over the threshold for being eligible for Medicaid and this would limit the amount or possibly make him ineligible to receive SSI.
Unfortunately, there are people out there that will target others and attempt to take advantage of them. People steal identities, trick them into giving them funds, pretend to be their friends in order to get things, and so many other horrible ways to get money or things from others. A special needs person with cognitive issues may not consider these or may be innocent enough that this doesn't occur to them and they can't protect themselves easily.
With a special needs trust, there are guidelines that need to be followed for distributions to occur as well as documentation and the beneficiary has no control of these funds or requesting funds to be released. This is where having a trustee in charge of the trust is essential and prevents predators from taking advantage of our loved ones. These guidelines also help prevent the trustee from abusing the trust as well.
Because of the lack of control, the beneficiary has in regards to the trust, the beneficiary can't be manipulated to release them to anyone for any reason. This is also the reasoning that the trust does not count against him or her in regards to government aid.
There are many situations that the court may be involved with someone. There may be a lawsuit, an accident of some sort, a divorce, or someone simply suing in hopes of a settlement to make it go away. Here is an example that could happen:
Charles and Sara got married just out of college and everything was good until Charles was diagnosed with Mupltiple Sclerosis when he was 28 years old. Three years into the marriage and their life view is suddenly turned on its head.
Charles parents end up passing away two years later and leave $300,000 from their savings and their house to a special need trust for Charles as a safe guard to help with living costs and medical supplies.
Sara stands by Charles side for several more years until the stress is too much and they decide to divorce. Charles is unable to work at this point, but because his parents passed their house and money to the trust. These are not part of the divorce and Charles doesn't (he can't) sell the house or split the money. This gives Charles a comfortable place to live as well as funds to help continue to live as comfortable as possible.
This is a reality that many people will face in their lives Fortunately, the money was left in a way that even if Charles wanted to give a portion of it away, he wouldn't be able to. The funds are where his parents wanted them in order to help their son and make his life as comfortable as they could help with.
The situation could be the same if there was an accident and someone tried to sue the beneficiary. The beneficiary could be sued, but it wouldn't be able to touch money or anything else in the trust that was set up to protect and help the beneficiary's future.
A special needs trust can be a fairly straightforward process to set-up. There are many websites that offer help in how to set them up for loved ones. I purchased the and was extremely impressed with the information, fillable forms, and assistance the book offers in setting up a special needs trust for my son. The authors are both attorneys that offer great assistance through the book and show specific phrases and terms that need to be used. I would suggest this book to anyone thinking about how to protect the future of their loved one. Special Needs Trusts 7th Edition by NOLO
Did you find this helpful in giving a basic concept and direction for a special needs trust?
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
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© 2018 Chris Andrews